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SOURCE  BOOK  IN  ECONOMICS 


SOURCE   BOOK   IN 
ECONOMICS 


SELECTED     AND    EDITED    FOR 
THE    USE    OF    COLLEGE    CLASSES 


BY 


FRANK  A.  FETTER,  PH.  D.,  LL.  D. 

PROFESSOR  OF  ECONOMICS  IN  PRINCETON  UNIVERSITY 

Author  of  "The  Principles  of  Economics  " 


NEW  YORK 

THE  CENTUEY  CO, 

1912 


Copyright,  1912,  by 
THE  CENTURY  Co. 


CONTENTS 

PAGE 

I    MARKETS  AND  PRICES. 

1.  Origin  of  exchange — Herbert  Spencer 3 

2.  Origin    of    markets    and    market    prices — Henry    C. 

Maine 8 

3.  Odd  prices  and  bargains  in  retail  trade — Robert  C. 

Brooks        15 

4.  Some  seasonal  price-variations — Henry  C.  Taylor     .     25 
_  6.  Marketing  of  farm  products — Frank  Andrews      .      .     34 

--^^-_>-C.  Farm     products     and     consumers'     prices — Secretary 

Wilson        *8 

7.  An  unsalable  food  surplus — The  New  York  Time*   .     58 

II    WEALTH  AND  ITS  USES. 

8.  Rentals  of  urban  real  estate — Richard  M.  Hurd  .      .     81 

9.  Housing  and  rents  in  American  towns — British  Board 

of   Trade 68 

10.  The  farmer's  woodlot — George  F.  Warren  ....     75 

11.  Hauling  from  farms  to  shipping  points — U.  S.  Depart- 

ment of  Agriculture 81 

~ 12.  Land  from  the  waters — Nathaniel  S.  Shaler   .      .      .91 

-^13.  Conservation  of  National  resources — National  Conser- 
vation  Commission 102 

^-14.  Depreciation  in  cotton  factories — Tariff  Board     .     .117 

III  CAPITAL  AND  INVESTMENT. 

16.  Capitalization    and    urban    land-values — Richard    M. 

Hurd 120 

«^  18.  Some  examples  of  increasing  land-values — C.  B.  Fille- 

brown 130 

17.  The  New  York  exchanges — Governor  Hughes'  Commis- 

sion         138 

IV  LABOR  AND  POPULATION. 

18.  Differences  in  efficiency  of  weavers — Tariff  Board     .   157 

19.  Conservation  of  human  life — Irving  Fisher     .      .     .163 

^59772 


CONTENTS 

PAGE 

20.  Wages  of  farm  labor — George  K.  Holmes  .      .     .      .176 

21.  Real    wages    in   American    towns — -British   Board   of 

Trade 184 

22.  Immigration  and  conditions  of  labor— J.  W.  Jenks  and 

W.  J.  Lauck 187 

(23.  Wages  and  cost  of  living — British  Board  of  Trade  .   199 

24.  Cotton  mill  efficiency  and  machinery — Tariff  Board   .   206 

25.  The  minimum  rate  policy — D.  A.  McCabe  .      .      .      .214 

IV    COSTS,  PROFITS  AND  MONOPOLY. 

26.  Prices  and  farm  management — Henry  C.  Taylor  .      .  228 

27.  Some  findings  on  cotton  manufactures — Tariff  Board  233 

28.  Cost  of  production   in  the  steel  industry — Commis- 

sioner of  Corporations 247 

29.  The   Standard  Oil  trust — Commissioner  of   Corpora- 

tions       255 

30.  Water-power  development  in  the  United  States — Com- 

missioner of  Corporations 265 

VI    PRIVATE  INCOMES  AND  SOCIAL  WELFARE. 

31.  The  standard  of  life — Mrs.  Bernard  Bosanquet   .      .  275 

32.  The  influence  of  income  on  standards  of  life — Robert 

C.  Chapin 284 

33.  Economic    causes   as   affecting   political   history — W. 

M.    Daniels 292 

IVII    THE  STATE  AND  INDUSTRY. 

34.  Gold  production,  1890-1910— Director  of  the  Mint   .  303 

35.  The  National  banks — Comptroller  of  the  Currency     .   314 

36.  Plan    for    monetary    legislation — National    Monetary 

Commission 324 

—  37.  The  trade  balance  of  the  United  States — George  Paish  337 

38.  Some  findings  on  wool— Tariff  Board 347 

39.  Findings  on  the  wool  tariff— President  Taft  .      .      .358 

40.  The  Interstate  Commerce  Act — Act  of  Congress   .      .361 

41.  Railroad     values    and    rates — Interstate    Commerce 

Commission 368 

42.  Railroads    as   national    assets — Interstate    Commerce 

Commission 379 

43.  Sherman  Anti-trust  law— Act  of  Congress  .     .     .     .383 


SOURCE  BOOK  IN  ECONOMICS 


SOURCE  BOOK  IN 
ECONOMICS 

ORIGIN  OP  EXCHANGE— SPENCER'S  THEORY 

[!N  his  Principles  of  Sociology,  Herbert  Spencer  suggests  that 
barter,  and  exchange  for  money,  may  have  grown  out  of  the  exchange 
of  presents;  and  he  gives  some  evidence  in  support  of  this  view. 
In  discussing  ceremonial  institutions  he  shows  that  the  custom  of 
giving  presents  developed  into  the  various  forms  of  tribute,  taxation, 
sacrifice,  and  ecclesiastical  offerings.  He  then  says  (Vol.  II,  pp.  99— 
100;  reproduced  by  permission  of  the  publishers,  D.  Appleton  and  Co., 
New  York;  three  volumes,  1895  and  1896):] 

Something  must  be  added  concerning  presents  passing  be- 
tween those  who  do  not  stand  in  acknowledged  relations  of 
superior  and  inferior. 

Consideration  of  these  carries  us  back  to  the  primitive  form 
of  present-making,  as  it  occurs  between  members  of  alien  so- 
cieties; and  on  looking  at  some  of  the  facts,  there  is  sug- 
gested a  question  of  much  interest:  Whether  from  the  pro- 
pitiatory gift  made  under  these  circumstances  there  does 
not  originate  another  important  kind  of  social  action? 
Barter  is  not,  as  we  are  apt  to  suppose,  universally  under- 
stood.1 Cook,  speaking  of  his  failure  to  make  any  exchange 
of  articles  with  the  Australians,  says,  "They  had,  indeed,  no 
idea  of  traffic. "  And  other  statements  suggest  that  when 
exchange  begins,  the  thought  of  equivalence  between  the  things 
given  and  received  scarcely  arises.  Of  the  Ostyaks,  who  sup- 
plied them  "with  plenty  of  fish  and  wildfowl/'  Bell  remarks, 

i  [Compare  with  A.  Smith's  idea  of  a  "propensity  in  human  nature 
to  truck,  barter,  and  exchange  one  thing  for  another."  Wealth  of  Na- 
tions, book  i,  ch.  2. — ED.] 

3 


1-  ORIGIN  OF  EXCHANGE 

"Give  them  only  a  little  tobacco  and  a  dram  of  brandy,  and 
they  ask  no  more,  not  knowing  the  use  of  money."  Kemem- 
bering  that  at  first  no  means  of  measuring  values  exists,  and 
that  the  conception  of  equality  of  value  has  to  grow  by  use, 
it  seems  not  impossible  that  mutual  propitiation  by  gifts  was 
the  act  from  which  barter  arose:  the  expectation  that  the 
present  received  would  be  of  like  worth  with  that  given  be- 
ing gradually  established,  and  the  exchanged  articles  simul- 
taneously losing  the  character  of  presents.  One  may,  indeed, 
see  the  connection  between  the  two  in  the  familiar  cases  of 
gifts  made  by  European  travelers  to  native  chiefs;  as  where 
Mungo  Park  writes:  "Presented  Mansa  Kussan  [the  chief 
man  of  Julifunda]  with  some  amber,  coral,  and  scarlet,  with 
which  he  appeared  to  be  perfectly  satisfied,  and  sent  a  bul- 
lock in  return."  Such  transactions  show  us  both  the  original 
meaning  of  the  initial  present  as  propitiatory,  and  the  idea 
that  the  responsive  present  should  have  an  approximately-like 
value :  implying  informal  barter.  Nay  more.  Certain  usages 
of  the  North  American  Indians  suggest  that  even  a  circulating 
medium  may  originate  from  propitiatory  presents.  Catlin 
writes : 

Wampum  has  been  invariably  manufactured,  and  highly  valued  as 
a  circulating  medium  (instead  of  coins,  of  which  the  Indians  have  no 
knowledge)  ;  so  many  strings,  or  so  many  hands'  breadth,  being  the 
fixed  value  of  a  horse,  a  gun,  a  robe,  etc.  In  treaties  the  wampum 
belt  has  been  passed  as  the  pledge  of  friendship,  and  from  time 
immemorial  sent  to  hostile  tribes,  as  the  messenger  of  peace;  or  paid 
by  so  many  fathoms*  length,  as  tribute  to  conquering  enemies. 

[In  the  part  on  "Industrial  Institutions,"  originally  published  ten 
years  later  than  the  foregoing,  Spencer  says,  Vol.  Ill,  pp.  387-391]: 

Among  incidents  of  human  intercourse  few  seem  simpler 
than  barter ;  and  the  underlying  conception  is  one  which  even 
the  stupidest  among  savages  are  supposed  to  understand.  It 
is  not  so,  however.  In  ...  treating  of  Ceremonial  Insti- 
tutions, reasons  were  given  for  suspecting  that  barter  arose 
from  the  giving  of  presents  and  the  receipt  of  presents  in  re- 


ORIGIN  OF  EXCHANGE  5 

turn.  Beyond  the  evidence  there  assigned  there  is  sufficient 
further  evidence  to  justify  this  conclusion.  In  the  narrative 
of  an  early  voyager,  whose  name  I  do  not  remember,  occurs 
the  statement  that  barter  was  not  understood  by  the  Austra- 
lian savages:  a  statement  which  I  recollect  thinking  scarcely 
credible.  Verifying  testimonies  have,  however,  since  come  to 
hand.  Concerning  the  New  Guinea  people  we  read : 

One  of  the  most  curious  features  noticed  by  Dr.  Miklucho  Maclay 
was  the  apparent  absence  of  trade  or  barter  among  the  people  of 
Astrolabe  Bay.  They  exchange  presents,  however,  when  different  tribes 
visit  each  other,  somewhat  as  among  the  New  Zealanders,  each  party 
giving  the  other  what  they  have  to  spare;  but  no  one  article  seems 
ever  to  be  exchanged  for  another  of  supposed  equivalent  value. 

Confirmation  is  yielded  by  the  account  D'Albertis  gives  of 
certain  natives  from  the  interior  of  New  Guinea.  Concerning 
one  who  came  on  board  he  says: 

1  asked  him  for  the  belt  he  wore  round  his  waist,  in  exchange  for 
some  glass  beads,  but  he  did  not  seem  to  understand  the  proposal,  which 
I  had  to  make  in  pantomime  instead  of  vocal  language.  He  spoke 
a  few  words  with  his  people,  and  then  he  took  off  his  belt,  and  re- 
ceived in  exchange  the  beads  and  the  looking-glass,  in  which  he  seemed 
afraid  to  look  at  himself.  When,  however,  he  was  on  the  point  of 
returning  to  shore,  he  wanted  to  have  his  belt  back,  and  it  was  im- 
possible to  make  him  understand  that  he  had  sold  it,  and  that  if  he 
did  not  wish  to  part  with  it  he  must  return  the  articles  he  had  re- 
ceived in  exchange. 

Another  instance,  somewhat  different  in  its  aspect,  comes  to 
us  from  Samoa.  Turner  says  that  at  a  burial  "  every  one 
brought  a  present,  and  the  day  after  the  funeral  these  pres- 
ents were  all  so  distributed  again  as  that  every  one  went  away 
with  something  in  return  for  what  he  brought."  Of  a  re- 
mote people,  the  tribes  of  Nootka  Sound,  we  read  as  follows 
in  Bancroft : 

They  manifest  much  shrewdness  in  their  exchanges;  even  their  sys- 
tem of  presents  is  a  species  of  trade,  the  full  value  of  each  gift  being 
confidently  expected  in  a  return  present  on  the  next  festive  occasion. 


6  ORIGIN  OF  EXCHANGE 

A  different  phase  of  the  process  occurs  in  Africa.    Describ- 
ing the  Bihenos,  Capello  and  Ivens  tell  us : 

Following  the  vicious  system  in  operation  throughout  Africa  of  not 
selling  anything  to  the  European,  but  making  him  a  present  of  it, 
they  extort  from  him  in  turn  all  his  goods  and  effects,  bit  by  bit, 
until  the  unhappy  man  finds  himself  under  the  necessity  of  refusing 
all  presents. 

Thus  the  very  idea  of  exchange,  without  which  there  can- 
not begin  commercial  intercourse  and  industrial  organiza- 
tion, has  itself  to  grow  out  of  certain  ceremonial  actions  orig- 
inated by  the  desire  to  propitiate. 

In  the  absence  of  measures  of  quantity  and  value,  the 
idea  of  equivalence  must  remain  vague.  OnJy  where  the 
things  offered  in  barter  are  extremely  unlike  in  their  amounts 
or  qualities  or  characters,  does  lack  of  equivalence  become 
manifest.  How  rude  trading  transactions  are  at  first,  is  well 
shown  by  the  following  extract  concerning  an  Indian  people, 
the  Chalikatas.  Dalton  says: 

It  was  very  interesting  to  watch  the  barter  that  took  place  there 
between  these  suspicious,  excitable  savages  and  the  cool,  wily  traders 
of  the  plains.  The  former  took  salt  chiefly  in  exchange  for  the  com- 
modities they  brought  down,  and  they  would  not  submit  to  its  being 
measured  or  weighed  to  them  by  any  known  process.  Seated  in  front 
of  the  trader's  stall,  they  cautiously  take  from  a  well-guarded  basket 
one  of  the  articles  they  wish  to  exchange.  Of  this  they  still  retain 
a  hold  with  their  toe  or  their  knee  as  they  plunge  two  dirty  paws 
into  the  bright  white  salt.  They  make  an  attempt  to  transfer  all  they 
can  grasp  to  their  own  basket,  but  the  trader,  with  a  sweep  of  his 
hand,  knocks  off  half  the  quantity,  and  then  there  is  a  fiery  alter- 
cation, which  is  generally  terminated  by  a  concession  on  the  part  of 
the  trader  of  a  few  additional  pinches. 

In  the  absence  of  a  medium  of  exchange  other  incon- 
veniences arise.  One  is  the  difficulty  of  bringing  into  rela- 
tion those  whose  needs  are  reciprocal.  The  experiences  of 
Dr.  Earth  in  Africa  clearly  exemplify  this  evil: 

A  small  farmer  who  brings  his  corn  to  the  Monday  market  ...  in 
Kukawa,  will  on  no  account  take  his  payment  in  shells,  and  will 


ORIGIN  OF  EXCHANGE  7 

rarely  accept  of  a  dollar:  the  person,  therefore,  who  wishes  to  buy 
corn,  if  he  has  only  dollars,  must  first  exchange  a  dollar  for  shells, 
or  rather  buy  shells;  then  with  the  shells  he  must  buy  a  '"kulgu,"  or 
shirt;  and  after  a  good  deal  of  bartering  he  may  thus  succeed  in 
buying  the  corn.  .  .  .  The  fatigue  to  be  undergone  in  the  market  is 
such  that  I  have  very  often  seen  my  servants  return  in  a  state  of  the 
utmost  exhaustion. 

In  this  place,  better  than  elsewhere,  may  be  named  an 
obstacle  to  a  developed  system  of  exchange  which  results 
from  the  misapprehensions  of  the  uninitiated.  Of  the  Chi- 
tralis,  Captain  Younghusband  tells  us  that  they  supposed 
rupees  to  be  ornaments  only,  and  could  not  understand  re- 
ceiving them  in  payment  for  work.  Pirn  and  Seemann  say 
of  the  Bayano  Indians  that: 

They  do  not  seem  to  understand  exactly  the  value  of  money,  and 
think  that  the  true  drift  of  making  a  bargain  consists  in  offering  a 
sum  different  to  that  demanded.  I  happened  to  be  in  a  shop  when 
four  of  them  came  in  to  buy  a  comb,  for  which  half  a  crown  [two 
and  a  half  shillings]  was  asked,  but  the  Indians  said  that  unless  the 
shopkeeper  would  take  three  shillings  they  could  not  think  of  having  it. 

Here  "the  higgling  of  the  market "  is  exhibited  under  its 
general  form — the  expression  of  a  difference  between  the  esti- 
mates of  buyer  and  seller;  and,  showing  that  lack  of  dis- 
crimination characterizing  low  intelligences,  there  is  a 
confusion  between  the  two  ways  of  asserting  the  difference. 


ORIGIN  OF  MARKETS  AND  PRICES 

[Sis  HENBY  MAINE  in  one  of  his  lectures,  cited  below,  shows  that  the 
modern  ideas  of  competition-rent  for  land  and  of  the  sale  of  land  by 
individuals  were  not  known  in  primitive  communities.  Rents  were  de- 
termined by  custom.  Rack-rent,  an  Irish  term  sometimes  used  to 
indicate  an  extreme  competition-rent,  was  really  the  rent  exacted 
from  a  person  of  a  strange  tribe  in  contrast  with  "a  fair  rent,  from 
one  of  the  tribe."  "In  a  primitive  society  the  person  who  submits  to 
extreme  terms  from  one  group  is  pretty  sure  to  be  an  outcast  thrown 
on  the  world  by  the  breaking  up  and  dispersion  of  some  other  group, 
and  the  effect  of  giving  him  land  on  these  terms  is  not  to  bring  him 
under  the  description  of  a  tenant  as  understood  by  the  economists,  but 
to  reduce  him  to  a  condition  resembling  predial  servitude." 

The  author  then  broadens  his  inquiry  to  that  of  the  origin  of  com- 
petition-price, or  market-price  in  general;  competition-rent  of  land 
being,  as  he  shows,  but  one  case  of  market-price.  We  quote  below 
most  of  pages  189-201,  in  the  chapter  on  "The  early  history  of  price 
and  rent"  from  Village-Communities  in  the  East  and  West, 'six  lec- 
tures delivered  at  Oxford.  First  published  1871;  quotations  from  the 
third  edition,  1876,  by  courtesy  of  the  publisher,  John  Murray,  Alber- 
marle  Street,  London.] 

It  would  almost  certainly  be  labor  wasted  to  search  among 
the  records  of  ancient  law  for  any  trace  of  the  ideas  which 
we  associate  with  competition-rents.  But  if  land  in  primitive 
times  was  very  rarely  sold  or  (in  our  sense)  rented,  and  if 
movable  property  was  very  rarely  hired  for  money,  it  is  at 
least  probable  that  from  a  very  early  date  movables  were 
purchased.  It  does  not  appear  to  me  quite  a  hopeless  under- 
taking to  trace  the  gradual  development  of  the  notions  con- 
nected with  price;  and  here,  if  at  all,  we  shall  be  able  to 
follow  the  early  history  of  bargaining  or  competition.  Nor, 
if  we  can  discover  any  primitive  ideas  on  the  point,  need  we 
hesitate  to  transfer  them  from  the  sale  of  movables  to  the 


ORIGIN  OF  MARKETS  AND  PRICES  9 

competition  of  land.  The  Roman  lawyers  remark  of  the  two 
contracts  called  Sale  for  Price,  and  Hiring  for  Considera- 
tion, that  they  are  substantially  the  same,  and  that  the  rules 
which  govern  one  may  be  applied  to  the  other.  The  observa- 
tion seems  to  me  not  only  true,  but  one  which  it  is  important 
to  keep  in  mind.  You  cannot  indeed  without  forcing  language 
speak  of  the  contract  of  sale  in  terms  of  the  contract  of  let- 
ting and  hiring;  but  the  converse  is  easy,  and  there  is  no 
incorrectness  in  speaking  of  the  letting  and  hiring  of  land 
as  a  sale  for  a  period  of  time,  with  the  price  spread  over 
that  period.  I  must  confess  I  could  wish  that  in  some  famous 
books  this  simple  truth  had  been  kept  in  view.  It  has  several 
times  occurred  to  me,  in  reading  treatises  on  political  economy, 
that  if  the  writer  had  always  recollected  that  a  competition- 
rent  is  after  all  nothing  but  price  payable  by  instalments, 
much  unnecessarily  mysterious  language  might  have  been 
spared  and  some  (to  say  the  least)  doubtful  theories  as  to 
the  origin  of  rent  might  have  been  avoided.  The  value  of 
this  impression  anybody  can  verify  for  himself. 

What,  in  a  primitive  society,  is  the  measure  of  price?  It 
can  only  be  called  custom.  Although  in  the  East  influences 
destructive  of  the  primitive  notion  are  actively  at  work,  yet 
in  the  more  retired  villages  the  artificer  who  plies  an  an- 
cient trade  still  sells  his  wares  for  the  customary  prices, 
and  would  always  change  their  quality  rather  than  their 
price — a  preference,  I  must  remark,  which  has  now  and  then 
exposed  the  natives  of  India  to  imputations  of  fraud  not 
wholly  deserved.  And  in  the  West,  even  in  our  own  coun- 
try, there  are  traces  of  the  same  strong  feeling  that  price 
should  be  determined  by  custom  in  the  long  series  of  royal, 
parliamentary,  and  municipal  attempts  to  fix  prices  by  tariff. 
Such  attempts  are  justly  condemned  as  false  political  economy, 
but  it  is  sometimes  forgotten  that  false  political  economy  may 
be  very  instructive  history.  .  .  . 

What,  then,  is  the  origin  of  the  rule  that  a  man  may 
ask — or,  if  you  choose  so  to  put  it,  that  he  does  ask — the 


10  ORIGIN  OP  MARKETS  AND  PRICES 

highest  available  price  for  the  wares  which  he  has  to  sell? 
I  think  that  it  is  in  the  beginning  a  rule  of  the  market,  and 
that  it  has  come  to  prevail  in  proportion  to  the  spread  of  ideas 
originating  in  the  market.  This  indeed  would  be  a  proposi- 
tion of  little  value,  if  I  did  not  go  farther.  You  are  well 
aware  that  the  fundamental  proposition  of  political  economy 
is  often  put  as  the  rule  of  buying  in  the  cheapest  market  and 
selling  in  the  dearest.  But  since  the  primitive  period,  the 
character  of  markets  has  changed  almost  as  much  as  that 
of  society  itself.  In  order  to  understand  what  a  market  orig- 
inally was,  you  must  try  to  picture  to  yourselves  a  territory 
occupied  by  village-communities,  self-acting  and  as  yet 
autonomous,  each  cultivating  its  arable  land  in  the  middle  of 
its  waste,  and  each,  I  fear  I  must  add,  at  perpetual 
war  with  its  neighbor.  But  at  several  points,  points  prob- 
ably where  the  domains  of  two  or  three  villages  converged, 
there  appear  to  have  been  spaces  of  what  we  should  now 
call  neutral  ground.  These  were  the  markets.  They  were 
probably  the  only  places  at  which  the  members  of  the  dif- 
ferent primitive  groups  met  for  any  purpose  except  war- 
fare, and  the  persons  who  came  to  them  were  doubtless 
at  first  persons  specially  empowered  to  exchange  the  produce 
and  manufactures  of  one  little  village-community  for  those 
of  another.  Sir  'John  Lubbock  in  his  recent  volume  on  the 
"Origin  of  Civilization/'  has  some  interesting  remarks  on 
the  traces  which  remain  of  the  very  ancient  association  be- 
tween markets  and  neutrality  (page  205) ;  nor — though  I 
have  not  now  an  opportunity  of  following  up  the  train  of 
thought — can  I  help  observing  that  there  is  a  historical  con- 
nection of  the  utmost  importance  to  the  moderns  between  the 
two,  since  the  Jus  Gentium  of  the  Roman  Praetor,  which  was 
in  part  originally  a  market  law,  is  the  undoubted  parent  of 
our  International  Law.  But,  besides  the  notion  of  neutrality, 
another  idea  was  anciently  associated  with  markets.  This 
was  the  idea  of  sharp  practice  and  hard  bargaining.  The  three 
ideas  seem  all  blended  in  the  attributes  of  the  god  Hermes 


ORIGIN  OF  MARKETS  AND  PRICES  11 

or  Mercury — at  once  the  god  of  boundaries,  the  prince  of 
messengers  or  ambassadors,  and  the  patron  of  trade,  of  cheat- 
ing, and  of  thieves. 

The  market  was  then  the  space  of  neutral  ground  in  which, 
under  the  ancient  constitution  of  society,  the  members  of  the 
different  autonomous  proprietary  groups  met  in  safety  and 
bought  and  sold  unshackled  by  customary  rule.  Here,  it 
seems  to  me,  the  notion  of  a  man's  right  to  get  the  best  price 
for  his  wares  took  its  rise,  and  hence  it  spread  over  the  world. 
Market  law,  I  should  here  observe,  has  had  a  great  fortune 
in  legal  history.  The  Jus  Gentium  of  the  Romans,  though 
doubtless  intended  in  part  to  adjust  the  relations  of  Roman 
citizens  to  a  subject  population,  grew  also  in  part  out  of  com- 
mercial exigencies,  and  the  Roman  Jus  Gentium  was  grad- 
ually sublimated  into  a  moral  theory  which,  among  theories 
not  laying  claim  to  a  religious  sanction,  had  no  rival  in  the 
world  till  the  ethical  doctrines  of  Bentham  made  their  ap- 
pearance. If,  however,  I  could  venture  to  detain  you  with 
a  discussion  on  technical  law,  I  could  easily  prove  that  market 
law  has  long  exercised  and  still  exercises  a  dissolving  and 
transforming  influence  over  the  very  class  of  rules  which  are 
profoundly  modifying  the  more  rigid  and  archaic  branches 
of  jurisprudence.  The  law  of  personal  or  movable  property 
tends  to  absorb  the  law  of  land  or  of  immovable  property, 
but  the  law  of  movable  tends  steadily  to  assimilate  itself  to 
the  law  of  the  market.  The  wish  to  establish  as  law  that 
which  is  commercially  expedient  is  plainly  visible  in  the  re- 
cent decisions  of  English  courts  of  justice;  a  whole  group 
of  legal  maxims  having  their  origin  in  the  law  of  the  market 
(of  which  the  rule  of  caveat  emptor  is  the  most  significant) 
are  growing  at  the  expense  of  all  others  which  compete  with 
them.  .  .  . 

It  seems  to  me  that  the  half-conscious  repulsions  which  men 
feel  to  doctrines  which  they  do  not  deny  might  often  be  ex- 
amined with  more  profit  than  is  usually  supposed.  They  will 
sometimes  be  found  to  be  the  reflection  of  an  older  law  of 


12  ORIGIN  OF  MARKETS  AND  PRICES 

ideas.  Much  of  the  moral  opinion  is  no  doubt  in  advance 
of  law,  for  it  is  the  fruit  of  religious  or  philosophical  theories 
having  a  different  origin  from  the  law  and  not  yet  incor- 
porated with  it.  But  a  good  deal  of  it  seems  to  me  to  pre- 
serve rules  of  conduct  which,  though  expelled  from  law,  linger 
in  sentiment  or  practice.  The  repeal  of  the  usury  laws  has 
made  it  lawful  to  take  any  rate  of  interest  for  money,  yet  the 
taking  of  usurious  interest  is  not  thought  to  be  respectable, 
and  our  courts  of  equity  have  evidently  great  difficulty  in 
bringing  themselves  to  a  complete  recognition  of  the  new 
principle.  Bearing  this  example  in  mind,  you  may  not  think 
it  an  idle  question  if  I  ask:  What  is  the  real  origin  of  the 
feeling  that  it  is  not  creditable  to  drive  a  hard  bargain  with 
a  near  relative  or  a  friend?  It  can  hardly  be  said  that  there 
is  any  rule  of  morality  to  forbid  it.  The  feeling  seems  to  me 
to  bear  the  traces  of  the  old  notion  that  men  united  in  natural 
groups  do  not  deal  with  one  another  on  principles  of  trade. 
The  only  natural  group  in  which  men  are  now  joined  is  the 
family;  and  the  only  bond  of  union  resembling  that  of  the 
family  is  that  which  men  create  for  themselves  by  friend- 
ship. .  .  . 

All  indications  seem  to  me,  therefore,  to  point  to  the  same 
conclusion.  Men  united  in  those  groups  out  of  which  modern 
society  has  grown  do  not  trade  together  on  what  I  may  call, 
for  shortness,  commercial  principles.  The  general  proposi- 
tion which  is  the  basis  of  political  economy  made  its  first  ap- 
proach to  truth  under  the  only  circumstances  which  admitted 
of  men  meeting  at  arm's  length,  not  as  members  of  the  same 
group,  but  as  strangers.  Gradually  the  assumption  of  the 
right  to  get  the  best  price  has  penetrated  into  the  interior 
of  these  groups,  but  it  is  never  completely  received  so  long 
as 'the  bond  of  connection  between  man  and  man  is  assumed 
to  be  that  of  family  or  clan-connection.  The  rule  only  tri- 
umphs when  the  primitive  community  is  in  ruins.  What  are 
the  causes  which  have  generalized  a  rule  of  the  market  until  it 
has  been  supposed  to  express  an  original  and  fundamental  ten- 


ORIGIN  OF  MARKETS  AND  PRICES  13 

dency  of  human  nature,  it  is  impossible  to  state  fully,  so 
multifarious  have  they  been.  Everything  which  has  helped 
to  convert  society  into  a  collection  of  individuals  from  being 
an  assemblage  of  families,  has  helped  to  add  to  the  truth  of  the 
assertion  made  of  human  nature  by  the  political  economists. 
One  cause  may  be  assigned,  after  observation  of  the  East, 
in  the  substitution  of  caravan  or  carrying  trade  for  the  fre- 
quentation  of  markets.  When  the  first  system  grows  up,  the 
merchant,  often  to  some  extent  invested  with  the  privileges 
of  an  ambassador,  carries  his  goods  from  the  place  of  pro- 
duction, stores  them  in  local  entrepots,  and  sells  them  on  the 
principles  of  the  market.  ...  A  man  who  will  pay  the  price 
of  the  day  for  corn  collected  from  all  parts  of  India,  or  for 
cotton-cloth  from  England,  will  complain  (so  I  am  told)  if 
he  is  asked  an  unaccustomed  price  for  a  shoe. 

If  the  notion  of  getting  the  best  price  for  movable  property 
has  only  crept  to  reception  by  insensible  steps,  it  is  all  but 
certain  that  the  idea  of  taking  the  highest  obtainable  rent 
for  land  is  relatively  of  very  modern  origin.  The  rent  of  land 
corresponds  to  the  price  of  goods,  but  doubtless  was  slower 
in  conforming  to  economical  law,  since  the  impression  of  a 
brotherhood  in  the  ownership  of  land  still  survived  when  goods 
had  long  since  become  the  subject  of  individual  property. 
So  strong  is  the  presumption  against  the  existence  of  compe- 
tition-rents in  a  country  peopled  by  village-communities,  that 
it  would  require  the  very  clearest  evidence  to  convince  me 
that  they  were  anywhere  found  under  native  conditions  of 
society,  but  the  evidence  (as  I  told  you)  is  remarkably  un- 
convincing. .  .  . 

The  right  to  take  the  highest  obtainable  rent  for  land 
is,  as  a  matter  of  fact  and  as  a  matter  of  morality,  a  right 
derived  from  a  rule  of  the  market.  Both  the  explanation  and 
the  justification  of  the  exercise  of  the  right  in  England  and 
Scotland  is  that  in  these  countries  there  really  is  a  market 
for  land.  Yet  it  is  notorious  that,  in  England  at  all  events, 
land  is  not  universally  rack-rented.  But  where  is  it  that  the 


14  ORIGIN  OP  MARKETS  AND  PRICES 

theoretical  right  is  not  exercised?  It  is  substantially  true 
that,  where  the  manorial  groups  substituted  for  the  old  village 
groups  survive,  there  are  no  rack-rents.  What  is  sometimes 
called  the  feudal  feeling  has  much  in  common  with  the  old 
feeling  of  brotherhood  which  forbade  hard  bargains,  though 
like  much  else  it  has  passed  from  the  collective  community 
to  the  modern  representative  of  its  autocratic  chieftain. 
Even  in  England  the  archaic  rules  I  have  been  describing 
have  not  yet  quite  lost  their  authority.  .  .  . 

It  is  a  very  remarkable  fact  that  the  earliest  English  emi- 
grants to  North  America — who,  you  know,  belonged  prin- 
cipally to  the  class  of  yeomanry — organized  themselves  at 
first  in  village-communities  for  purposes  of  cultivation.  When 
a  town  was  organized,  the  process  was  that  the  "General 
Court  granted  a  tract  of  land  to  a  company  of  persons.  The 
land  was  first  held  by  the  company  as  property  in  common. ' ' 
(Palfrey,  "History  of  New  England/'  vol.  II,  p.  13.)  An 
American  commentator  on  this  passage  adds:  "The  company 
of  proprietors  proceeded  to  divide  the  land  by  assigning  first 
house-lots  (in  Marlborough  from  fifteen  to  twenty  acres), 
then  tracts  of  meadow  land,  and  in  some  cases  mineral  land, 
i.e.,  where  bog-iron  ore  was  found.  Pasture  and  woodland 
remained  in  common  as  the  property  of  the  company,  but 
a  law  of  the  General  Court  in  1660  provided  that  '  here- 
after no  cottage  or  dwelling-house  be  admitted  to  the  priv- 
ilege of  commonage  for  wood,  timber,  or  herbage  but  such 
as  are  already  in  being,  or  shall  be  erected  with  the  consent 
of  the  town. '  From  that  time  the  commoners  appear  as  a  kind 
of  aristocracy,  and  the  commons  were  gradually  divided  up. ' ' 
This  is  not  only  a  tolerably  exact  account  of  the  ancient 
European  and  existing  village-community,  but  it  is  also  a 
history  of  its  natural  development,  where  the  causes  which 
turn  it  into  a  manorial  group  are  absent,  and  of  its  ultimate 
dissolution. 


ODD  PRICES  AND  BARGAINS  IN  RETAIL  TRADE 

[THE  author  of  the  paper  bearing  this  title,  in  making  a  statistical 
study  of  a  semiannual  bargain-sale  price-list,  finds  that  about  32  per 
cent,  of  all  prices  quoted  end  in  the  figure  9;  16  per  cent,  in  the  figure 
5;  13  per  cent,  in  the  figure  3;  and  12  per  cent,  in  the  figure  8. 
Studying  the  figures  in  detail  he  suggests  various  interesting  reasons 
for  the  preference  shown  in  the  price-list.  We  quote  from  the  last 
third  of  the  paper,  by  Robert  C.  Brooks,  professor  of  Political  Science 
in  Swarthmore  College;  in  University  Studies,  published  by  the  Uni- 
versity of  Cincinnati,  March-April,  1908,  pp.  20-28,  here  abbreviated 
and  edited  with  the  author's  approval.] 

Are  odd  prices  cheap  prices?  The  whole  purpose  of  odd 
prices,  as  we  have  seen,  is  to  suggest  hy  means  of  carefully 
selected  figures  the  idea  of  price  reduction.  How  far  may 
this  suggestion  be  depended  upon?  In  attempting  to  answer 
this  question  we  should  note  first  that  odd  prices  are  only  part 
of  a  general  plan  to  the  same  end.  Readers  of  advertisements 
are  familiar  with  the  fact  that  in  addition  to  quoting  goods 
at  19,  49,  98  cents,  and  so  on,  the  advertiser  frequently  seeks 
to  convey  the  impression  that  reductions  much  greater  than 
one  or  two  cents  have  heen  made.  The  prospective  buyer 
may  take  all  such  statements  cum  grano  sails,  and  depend 
chiefly  on  the  small  but  apparently  visible  reductions  indicated 
by  the  odd  prices  themselves.  Nevertheless  the  bargain  hunter 
is  abroad  in  the  land,  and  even  the  most  astounding  of  the 
announcements  regarding  " sacrifices, "  " slaughtered  prices/' 
and  so  on  must  find  some  credence.  .  .  .  [Some  examples.] 

Now  there  is  nothing  intrinsically  improbable  in  any  of  the 
above  statements  taken  separately.  There  are  bargains  and 
bargains  as  every  experienced  shopper  knows.  Many  con- 
tingencies constantly;  occur  in  retail  trade  which  enable  or 

15 


16  BARGAINS  IN  RETAIL  TRADE 

compel  merchants  to  offer  goods  at  prices  below  the  ordinary 
rates.  Demand  fluctuates  widely;  in  almost  every  line  of 
business  there  are  dull  seasons  and  dull  days  during  which 
retailers  think  it  wise  to  offer  inducements  in  order  to  stimu- 
late a  sluggish  buying  public.  Every  merchant,  large  and 
small,  has  to  dispose  from  time  to  time  of  "stickers" — old 
stocks  of  slow  moving  goods.  Particularly  when  changes  of 
fashion  occur  or  improvements  are  coming  in  rapidly  is  this 
bound  to  be  the  case.  Manufacturers  and  jobbers  sometimes 
misjudge  the  market  and  find  themselves  with  large  stocks 
on  hand  near  the  end  of  a  season,  or  they  may  lose  their 
heads  even  when  there  is  no  danger  and  let  go  at  a  reduc- 
tion. In  such  cases  retailers,  particularly  large  retailers,  are 
in  a  position  to  secure  the  goods  on  terms  which  enable  them 
in  their  turn  to  sell  at  what  are  really  very  low  rates.  The 
purchase  of  bankrupt  stocks,  or  of  the  stocks  of  concerns 
that  are  going  out  of  business,  also  offers  opportunities. 
Other  contingencies  are  constantly  occurring  among  the  hun- 
dreds of  manufacturers,  jobbers,  and  retailers.  Of  course  in 
many  such  cases  the  fact  that  goods  are  offered  at  reduced 
prices  may  indicate  that  they  are  either  damaged,  out  of 
style,  or  undesirable  in  color  or  in  some  other  way.  This 
leaves  open  the  question  as  to  whether  the  reduced  prices  are 
really  low,  qualities  being  taken  into  consideration.  There 
can  be  no  doubt,  however,  that  opportunities  are  often  of- 
fered to  purchasers  to  buy  at  what  are  really  very  favorable 
rates.  For  example,  what  has  become  a  "sticker"  to  a  mer- 
chant may  satisfy  a  very  fresh  and  keen  desire  on  the  part 
of  a  customer.  Reductions  made  because  of  a  change  of 
fashion  may  mean  a  great  deal  to  purchasers  who  care  little 
for  style.  Even  standard  goods,  as  for  instance  silks  a  few 
years  ago,  may  be  turned  out  in  large  quantities  just  before 
a  sudden  falling  off  in  demand.  At  such  times  consumers 
may  justly  consider  themselves  fortunate  in  having  an  oppor- 
tunity to  stock  up  while  prices  are  low.  Then,  too,  it  some- 
times happens  that  a  certain  line  is  sold  at  a  reduction  to 


BARGAINS  IN  RETAIL  TRADE  17 

serve  the  purpose  of  the  bargain  counter,  that  is,  to  bring 
a  crowd  which  will  be  tempted  to  buy  other  things.  The 
particular  goods  that,  so  to  speak,  serve  as  bait  may  be  very 
attractive  considered  separately.  Finally  it  should  be  said 
that  successful  merchants  are  neither  fools,  nor  do  they  take 
their  customers  to  be  fools.  They  realize  that  understatement 
is  more  effective  in  the  long  run  than  overstatement,  that  it 
does  not  pay  to  play  up  small  opportunities  as  great  features, 
and  that  it  does  pay,  most  emphatically,  to  mean  bargain  when 
you  say  bargain.  /To  be  sure  there  are  "lambs"  among  retail 
purchasers  just  as  there  are  in  Wall  Street,  with  this  dif- 
ference, however,  that  in  retail  trade  the  lambs  do  not  go 
"broke."  In  the  very  nature  of  the  case  they  must  continue 
buying.  And  unintelligent  as  many  buyers  doubtless  are, 
they  do  not  always  return  to  the  places  where  they  have  been 
shorn. 

In  a  word,  there  certainly  are  bargains — for  those  who  are 
able  to  perceive  them — and  not  infrequently  at  that.  On  the 
other  hand,  there  is  a  considerable  element  of  deception  in 
many  offerings  under  this  seductive  heading.  Even  allowing 
fully  for  the  various  contingencies  noted  in  the  foregoing 
paragraph  it  still  remains  highly  improbable  that  all  the 
vast  array  of  startling  reductions  advertised  every  day  can  be 
bona  fide.  Sometimes  they  measure  the  credulity  of  cus- 
tomers or  of  certain  classes  of  customers  rather  than  the 
operations  of  a  "horizontal  discount  knife. "  The  writer  has 
been  told  of  cases  where  goods  have  been  deliberately  cut  into 
"remnants"  or  handkerchiefs  "mussed"  by  being  drawn 
through  the  hands.  Thrown  out  carelessly  on  the  counter  such 
"attractions"  prove  irresistible  to  a  certain  class  of  buyers 
who  snatch  them  up  without  examination  as  to  quality  or 
price,  convinced  from  the  apparent  condition  of  the  goods  that 
they  have  hit  upon  famous  bargains.  Experienced  shoppers 
can  usually  tell  of  at  least  a  few  cases  that  have  come  to 
their  notice  where  certain  goods  have  been  boosted  fifty 
cents  or  a  dollar  in  price  at  special  sales,  the  dealer  doubt- 


18  BARGAINS  IN  RETAIL  TRADE 

less  presuming  on  the  ignorance  of  customers  and  the  blasts 
of  his  advertisement  writer  to  carry  off  the  articles.  Success 
in  comparatively  few  instances  of  this  sort  would  make  up 
many  actual  small  reductions  of  a  cent  or  two  to  the  odd 
price  basis.  In  fairness  it  must  be  said,  however,  that  the 
best  merchants  regard  such  practices  as  bad  morally,  or  at 
least  injudicious.  Where  the  thing  is  done  surreptitiously  oc- 
casional discoveries  are  certain  to  occur,  and  the  store  is  bound 
to  suffer  losses  out  of  all  proportion  to  the  gains  derived  from 
the  foolish  trick.  Sometimes,  however,  the  practice  is  openly 
employed,  as  in  the  case  of  bargain  sales  held  on  dull  days 
or  in  the  mornings.  In  such  cases  every  one  is  given  to  under- 
stand that  prices  will  be  lower  at  the  time  and  higher  later, 
and  no  moral  blame  at  least  can  be  attached  to  the  merchant 
for  so  acting.  Nevertheless  this  knowledge  does  not  soothe  the 
ruffled  temper  of  the  purchaser  who  is  forced  to  pay  twenty- 
five  cents  for  something  his  neighbor  may  have  gotten  for 
nineteen  cents.  Realizing  this  fact  merchants  generally  fol- 
low the  "one  price  policy"  of  holding  goods  at  a  given  figure 
for  some  time.  If  reduction  then  becomes  necessary  goods 
are  held  at  the  lower  figure  until  closed  out,  or  further  re- 
ductions without  intervening  advances  are  made  until  this 
end  is  attained. 

There  is  plenty  of  available  evidence  that  some  "great 
reductions"  heralded  in  advertisements  are  really  great  exag- 
gerations of  very  small  reductions.  Instances  of  this  sort 
are  given  by  the  Dry  Goods  Economist  of  March  19,  1904. 
.  .  .  Frequently  one  notices  the  beginning  of  better  things 
or  at  least  of  greater  caution  in  the  avoidance  of  direct  affirma- 
tions that  former  prices  were  so  and  so,  and  the  substitution 
therefore  of  statements  to  the  effect  that  "values"  or  "quali- 
ties" would  justify  higher  prices  than  the  ones  asked.  Some- 
times reformation  takes  the  dubious  path  of  sweeping  an- 
nouncements that  competitors  can  not  meet  the  prices  fixed 
by  the  advertiser.  Investigation  of  such  statements  requires 
more  time  than  most  purchasers  can  afford  to  give,  but  in  al 


BARGAINS  IN  RETAIL  TRADE  19 

retail  markets  of  any  considerable  size  they  are  simply  not 
warranted  by  facts.  Every  wide-awake  merchant  constantly 
has  opportunities  along  certain  lines — so  much  may  be  ad- 
mitted— but  no  merchant  has  an  absolute  monopoly  of  such 
opportunities.  The  unceasing  vigilance  with  which  retail 
traders  watch  each  other  is  scarcely  known  to  the  general 
public.  In  every  large  establishment  there  is  a  "Comparison 
Department "  specially  charged  with  this  function.  "  Spot- 
ters "  are  constantly  being  sent  out  by  the  head  of  this  de- 
partment to  observe  the  doings  of  competitors  and  daily  re- 
ports of  their  findings  are  made.  If  a  rival  store  offers  a 
great  bargain,  samples  are  bought,  carefully  examined,  even 
torn  to  pieces  if  necessary  to  ascertain  qualities,  and  a  cor- 
responding or  greater  reduction  made  if  thought  advisable. 
Under  the  circumstances,  the  advertisements  of  merchants  who 
claim  everything  all  the  time  are  more  ludicrous  than  any- 
thing else. 

Standards  of  retail  business.  While  there  is  doubtless 
much  to  condemn  in  some  of  the  practices  cited  in  the  fore- 
going pages  it  would  be  highly  unjust  to  charge  all  retailers 
with  deliberate  and  habitual  misrepresentation.  Many  of  the 
greatest  successes,  one  can  say  practically  all  the  permanent 
successes,  of  the  mercantile  world,  have  been  made  by  firms 
which  have  conscientiously  avoided  deception.  It  would  be 
easy  to  mention  cases  of  this  sort  in  New  York,  Chicago, 
Philadelphia,  and  other  of  our  large  cities,  but  they  are  famil- 
iar enough  without  mention.  Even  where  retail  practice  is 
not.  so  scrupulous,  deliberate  and  habitual  misrepresentation 
can  not  always  be  charged.  The  truth  is  that  many  merchants 
of  this  as  well  as  of  a  higher  type  use  such  terms  as  qualities, 
values,  prices,  etc.,  very  loosely,  and  more  in  accordance  with 
the  customs  of  the  market  in  which  they  happen  to  be  doing 
business  than  with  the  definitions  of  economics  or  the  canons 
of  ethics.  Not  infrequently  the  community,  or  a  certain  class 
of  buyers  in  the  community,  is  to  blame  in  large  part  for  the 
abuses  which  spring  up  in  retailing.  On  this  point  the  writer 


20  BARGAINS  IN  RETAIL  TRADE 

finds  it  impossible  to  agree  entirely  with  a  very  clever  author- 
ity on  merchandising  who  maintains  that  "the  retailer  is  the 
king  of  business.  It  's  not  the  consumer — arguments  to  the 
contrary  notwithstanding.  It  's  upon  the  education  given  the 
consumer  by  the  dealer  that  the  formation  of  taste  depends." 
Granting  that  the  influence  of  the  retailer  is  great,  it  still 
remains  true  that  his  patrons  are,  presumably  at  least,  fairly 
intelligent  grown-up  persons  who  exercise  ordinary  prudence 
in  business  matters.  The  retailer  is  more  active,  of  course, 
in  designing  and  applying  various  plans  to  attract  trade ;  but 
precisely  the  same  motive  as  his  own,  namely,  self-interest 
rightly  or  wrongly  conceived,  dictates  the  action  of  his  cus- 
tomers in  giving  or  withholding  patronage.  The  latter  may 
be  careless,  ignorant,  or  under  the  spell  of  that  delusive  cupid- 
ity which  is  always  seeking  something  for  nothing,  and  these 
conditions  may  permit  or  encourage  merchants  to  employ 
tricky  devices.  Even  so,  purchasers  can  hardly  be  exonerated 
from  all  blame  for  the  resulting  demoralized  condition  of  the 
retail  market.  In  illustration  of  the  foregoing  may  be  cited 
numerous  cases  of  towns  and  cities  where  severely  com- 
petitive "selling  campaigns "  have  been  carried  so  far  that 
in  the  end  it  becomes  almost  impossible  to  dispose  of  anything 
except  with  the  aid  of  such  devices  as  trading  stamps  or  as 
bargains  on  one  pretext  or  another — where  the  people  "have 
been  so  deafened  with  the  siren  song  of  'bargains/  "  as  one 
trade  journal  puts  it,  "that  they  don't  know  one  when  they 
see  it."  Manifestly  such  conditions  reflect  not  only  the  char- 
acter of  the  mercantile  element,  but  also  the  character  of 
the  public  as  retail  buyers — a  conclusion  which  need  not  be 
blinked  because  phenomena  of  this  sort  are  so  exceedingly 
common.  The  following  advice  given  to  a  merchant  who 
complained  of  trade  conditions  demoralized  in  this  manner 
is  particularly  noteworthy  because  of  its  frank  implication 
that  retail  trade  as  at  present  conducted  is  not  simply  a  price 
competition : 


BARGAINS  IN  RETAIL  TRADE  21 

.  .  .  The  wise  merchant,  when  he  sees  a  wave  of  price-cutting  sweep- 
ing over  his  community,  will  dodge  the  competition  as  far  as  he  is 
able.  He  will  do  all  he  can  to  impress  his  community  that  there  is 
something  more  than  price  to  be  considered.  He  will  not  do  this  by 
direct  statements  to  that  effect;  that  goes  without  saying.  But  he 
will  try  to  get  a  reputation  for  his  store  on  something  'besides  price, 
always  being  smart  enough  to  create  a  reputation  for  selling  as  low 
as  his  competitors.  He  will  sell  staples  extremely  low,  but  on  novelties 
he  '11  make  enough  profit  to  offset  the  loss.  And  he  will  get  the  people 
coming  to  him  for  these  novelties.  He  '11  talk  style  and  fashion  in  his 
ads,  and  over  the  counter;  he'll  show  the  new  and  fashionable  things 
and  he  will  have  them  before  the  other  fellows  get  them  in  stock.* 

Further  advice  along  the  same  lines  is  given,  but  enough 
has  been  quoted  to  make  clear  the  conditions  which  compel 
merchants  either  to  cut  prices  extensively  or  to  resort  to  other 
means  of  meeting  a  cut  price  competition. 

A  retail  buying  policy.  With  such  complex  and  often 
deceptive  conditions  existing  in  retail  trade  it  is*  a  matter  of 
considerable  difficulty  to  formulate  a  policy  for  buyers  to 
pursue.  Certain  general  rules  seem  fairly  clear,  however. 
It  is  an  old  maxim  that  nothing  is  a  bargain  which  is  not 
needed.  Unfortunately  purchasers  often  forget  this;  with 
many  people  buying  is  a  passion  rather  than  the  cold  calcula- 
tion of  the  economic  man.  One  qualification  of  the  maxim 
quoted  above  is  of  some  importance,  however.  There  are  many 
regularly  recurring  wants  which  the  ordinary  purchaser  satis- 
fies as  they  reach  their  maximum  intensity,  that  is,  usually, 
in  the  very  thick  of  the  season.  As  a  consequence  he  pays 
the  highest  retail  prices  for  his  goods.  A  careful  study  of  the 
cycle  of  special  sales  of  various  sorts  (for  they  run  in  a  fairly 
regular  cycle  through  the  year)  will  often  enable  him  to  ef- 
fect considerable  savings,  by  taking  advantage  of  low  prices 
during  dull  seasons.  Another  general  rule  for  the  bargain 
seeker  is  that  he  should  consider  the  cost  in  effort  as  well 
as  the  money-cost  of  the  things  he  buys.  In  spite  of  all  the 
devices  to  facilitate  the  examination  of  goods  and  their  de- 


i  Dry  Goods  Economist,  March  18,  190G,  p.  15. 


22  BARGAINS  IN  RETAIL  TRADE 

livery,  shopping  remains  an  arduous  occupation.  Notoriously 
it  is  often  carried  too  far.  Mrs.  John  Lane  tells  the  story 
in  a  recent  number  of  an  English  review  of  a  "woman  of 
massive  intellect"  who  saved  seven  pence  by  going  to  a  dis- 
tant suburb  for  Brussels  sprouts.  As  a  consequence  she  be- 
came so  exhausted  that  it  took  several  days  and  the  services 
of  a  fashionable  physician  to  restore  her.  Perhaps  it  is  be- 
cause of  the  frequent  neglect  of  two  such  obvious  principles 
as  the  foregoing — namely,  not  to  buy  what  you  don't  need 
and  not  to  go  to  too  much  trouble  in  your  buying — that  skep- 
ticism with  regard  to  the  existence  of  any  such  things  as 
bargains  in  retail  trade  is  so  common.  Often,  indeed,  it  is 
the  most  indefatigable  shopper  who  is  most  skeptical  on  this 
point,  which,  however,  merely  goes  to  show  that  over-sanguine 
expectations  lead  easily  to  irrational  disappointments. 

But  there  are  also  certain  positive  rules  with  regard  to 
buying  which  may  serve  as  supplement  to  the  preceding 
"don'ts."  Where  the  sum  involved  is  sufficiently  large  or 
where  an  article  is  likely  to  be  in  constant  demand  a  careful 
examination  of  the  stocks  of  various  retailers  is  usually  worth 
while,  whether  or  not  any  bargains  are  being  advertised  at 
the  time.  It  is  always  of  importance  to  ascertain  and  take 
into  consideration  the  general  reputation  for  honesty  and  fair- 
ness of  the  merchant  with  whom  you  are  dealing.  Fortunately 
information  of  this  sort  is  much  more  easily  obtained  than  that 
exhaustive  knowledge  of  goods  and  values  which  one  would 
require  in  order  to  be  fortified  against  deception  and  over- 
charge. In  this  connection  the  purchaser  would  do  well  to 
remember  the  principle  known  as  "the  reaction  of  consump- 
tion upon  production/'1  Every  purchase  of  goods  under 
given  conditions  is  a  vote,  accompanied  by  material  support, 
to  continue  those  conditions.  The  application  of  a  little  con- 
science in  such  matters  would  discourage  tremendously  many 
of  the  shady  practices  now  prevailing  in  retail  trade. 

With  regard  to  bargains  masquerading  in  the  guise  of  odd 

i  See  F.  A.  Fetter's  Principles  of  Economics,  ch.  41. 


BARGAINS  IN  RETAIL  TRADE  23 

prices  a  rather  greater  degree  of  caution  would  seem  ad- 
visable. Odd  prices  are  doubtless  clever  enough  with  a  rather 
meretricious  sort  of  cleverness,  but  this  will  hardly  com- 
mend them  to  careful  buyers.  If  certain  figures  are  intrin- 
sically so  attractive  one  wonders  whether  the  merchants  who 
put  their  trust  in  such  figures  do  not  neglect  other  and  more 
solid  advantages  which  they  might  offer  their  customers. 
Reductions  of  a  cent  or  two  on  some  few  articles  the  regular 
prices  of  which  are  definitely  known  may  be  bona  fide,  but 
with  regard  to  the  values  of  the  great  majority  of  things  of- 
fered for  sale  under  an  odd-price  scheme  the  ordinary  pur- 
chaser is  not  competent  to  judge,  and  consequently  is  likely 
to  be  deceived.  There  are  many  reasons,  as  we  have  seen, 
why  goods  frequently  have  to  be  reduced  in  price  in  retail 
trade,  but  there  is  no  reason  at  all  for  believing  that  an  ex- 
cessively large  number  of  these  reductions  should  follow  in 
such  a  series  as  98,  79,  69,  49,  and  so  on.  Nor  can  one  attach 
much  weight  to  the  argument  that  odd  prices  attract  so  much 
additional  custom  that  they  enable  the  merchant  employing 
them  to  purchase  in  so  much  larger  quantities  and  to  so  much 
better  advantage  that  he  can  afford  to  make  frequent  ~bona  fide 
reductions  of  a  cent  or  two.  Retail  competition  is  far  too 
complex;  it  involves,  as  we  have  already  had  occasion  to  ob- 
serve, so  many  factors  besides  price  alone  that  the  effect  of 
the  one  rather  doubtful  factor  of  odd  prices,  assuming  other 
conditions  equal,  would  count  for  comparatively  little.  And 
other  conditions  would  seldom  be  equal.  Moreover,  the  sort 
of  custom  attracted  by  odd  prices  and  similar  devices  is  apt 
to  be  much  more  fickle  than  that  which  is  built  up  by  con- 
servative and  less  sensational  business  practices.  There  is  al- 
ways one  advantage  to  the  purchaser  in  looking  over  goods 
marked  at  round  price  points,  namely,  that  he  can  consider 
alternate  utilities  of  the  various  articles  of  about  the  same 
value  he  may  need,  undisturbed  by  differences  of  a  cent  or 
two  in  cost.  On  the  other  hand,  if  merchants  string  their 
prices  up  and  down  the  scale  in  order  to  take  advantage  of 


24  BARGAINS  IN  RETAIL  TRADE 

popular  figures,  purchasers  too  often  succeed  in  " saving"  two 
cents  on  a  98  cent  article  they  do  not  need  at  the  cost  of 
the  far  greater  utility  of:  a  dollar  article  they  really  do  need. 
In  the  long  run  such  results  are  good  neither  for  sellers  nor 
buyers.  To  quote  proverbs,  which  notoriously  can  always  be 
made  to  contradict  each  other:  those  who  "take  care  of  the 
pennies"  in  the  hope  that  "the  dollars  will  take  care  of  them- 
selves" should  remember  also  that  there  is  such  a  thing  as  a 
"penny  wise,  pound  foolish"  policy.  Retail  trade  may  need 
reforming  in  many  particulars,  but  such  reform  can  only 
come  pari  passu  with  the  reform  of  retail  buyers.  Education 
for  giving  future  mothers  and  fathers  a  knowledge  of  articles 
of  common  use,  their  qualities,  prices,  proper  employment, 
markets  wherein  they  are  sold,  and  so  on,  is  sadly  needed. 
Until  the  public  attains  this  knowledge  and  this  point  of  view, 
odd  prices  and  even  more  objectionable  practices  will  continue 
to  flourish. 


SOME  SEASONAL  PRICE-VARIATIONS  IN  FOOD 


[THE  seasonal  variation  in  the  production  of  some  farm  products  and 
the  corresponding  changes  in  prices  have  been  studied  by  H.  C.  Taylor 
and  published  in  Bulletin  209  of  the  University  of  Wisconsin  Agri- 
cultural Experiment  Station  (May,  1911).  By  the  courtesy  of  Pro- 
fessor Taylor  we  are  able  to  reproduce  with  the  diagrams  the  fol- 
lowing passages.  The  facts  here  given  illustrate  interestingly  the 
nature  and  limits  of  elasticity  of  demand  for  these  articles,  the  problem 
of  time-value  in  perishable  foods,  and  the  influence  of  cold-storage  in 
equalizing  prices  throughout  the  year.] 

Eggs;  irregularity  of  supply.  The  egg  market  lends  it- 
self well  to  the  study  of  many  of  the  forces  which  influence 


MAR.  I    APR.   I    HAY    I  JUNE  I    JULY   I    AUG.    I  SEPT.  1    OCT 


PER 


F  i 

n     ii     .  . 
i  i     i  i 

H 

I    I        II    I 


MAR.  I   APR.   I     MAY    I  JUNE  I    JULY    I    AUG.    I  SEPT.  I    OCT    I    NOV    I    DEC    I    JAN.    I   FER 


Figure  1.     Production  of  eggs  on  a  Wisconsin  farm;  percentages  of  the  annual 
total  by  months,  five-year  average. 

prices.  Irregularity  of  the  supply,  variation  in  the  quality 
of  the  product,  and  a  highly  elastic  demand  are  characteristics 
strongly  accentuated  in  the  egg  market.  The  monthly  dis- 

25 


26 


SEASONAL  PRICE-VARIATIONS 


tribution  of  the  average  annual  production  of  eggs  on  a  Wis- 
consin dairy  farm  is  shown  in  figure  1.  The  chart  shows 
the  percentage  of  the  year's  egg  production  gathered  in  each 
month  in  the  year  for  five  years.  March  and  April  were  the 
months  of  greatest  productions.  The  production  fell  off 
greatly  during  the  summer  months  and  reached  its  lowest  level 
during  the  winter  months. 

It  is  believed  that  this  chart  tells  fairly  well  the  story  of 
the  irregularity  of  egg  production  on  farms  where  the  keeping 
of  poultry  is  primarily  for  supplying  the  wants  of  the  house- 
hold, and  the  sale  of  eggs  more  or  less  incidental. 


Figure  2. 


Weekly  receipts  and  prices  of  "prime  first"  class  eggs  in  the  Chicago 
market,  Feb.  1,  1909  to  March  20,  1911. 


It  is  possible  for  the  poultryman  to  control  the  egg  produc- 
tion in  such  a  manner  as  to  secure  a  much  larger  proportion  of 
the  annual  product  in  the  winter  months,  but  the  bulk  of  the 
egg  supply  is  not  produced  under  these  conditions.  ,  .  .  Egg 
production  is  a  widely  disseminated  non-specialized  industry 
and  the  supply  is  not  likely  to  be  appreciably  influenced  by 
the  conscious  action  of  a  few  individuals. 

The  Chicago  egg  market.  The  supply  of  eggs  upon  the 
Chicago  market  corresponds  to  these  conditions  of  production. 
In  Figure  2  the  solid  black  line  represents  the  weekly  supply 
of  eggs  brought  to  Chicago,  from  February  1,  1909,  to  March 
20,  1911.  The  supply  of  eggs  reached  the  maximum  in  April 
and  May  and  gradually  fell  off  until  the  end  of  the  year. 

The  price  of  eggs  on  the  Chicago  market  shows  the  influ- 


SEASONAL  PRICE- VARIATIONS  27 

ence  of  the  irregular  supply.  The  black  dots  connected  by 
lines,  in  Figure  2,  show  the  price  of  the  best  grade  of  eggs 
for  one  day  in  each  week. 

The  relation  between  the  supply  curve  and  the  price  curve 
in  this  chart  illustrates  the  influence  of  variation  in  the  supply 
upon  the  price  of  this  perishable  commodity.  The  fact  that 
the  price  of  eggs  in  Chicago  remained  above  20  cents  during 
the  periods  of  greatest  receipts  in  1909  and  1910  calls  for 


I  . »»-. I  .?*.;. I  rriy.1  .v!.L.Y. I  .**££.. I  riH7J  .xSI. I  .*!&••  I . .»•- 1  ..»•- I 


Figure  3.     Storage  of  eggs  by  a  Chicago  firm;  by  months,  in  percentages  of  total 

annual  storage. 

some  explanation.  The  elastic  character  of  the  demand  for 
eggs  has  already  been  mentioned.  At  a  price  between  20  and 
25  cents  eggs  become  an  inexpensive  substitute  for  meat,  and 
at  the  time  of  the  year  under  consideration,  weather  condi- 
tions are  usually  such  that  eggs  can  be  put  upon  the  market 
in  good  condition.  Under  these  circumstances  the  consump- 
tion of  eggs  expands  enormously. 

The  storage  of  eggs.  The  market  is  not  entirely  depend- 
ent, however,  at  the  period  of  maximum  supply  upon  the  de- 
mand for  eggs  for  immediate  consumption.  At  that  period 


28  SEASONAL  PRICE-VARIATIONS 

many  eggs  are  purchased  and  put  in  storage  for  use  during 
the  period  of  scarcity  of  fresh  eggs.  The  time  of  year  when 
eggs  are  put  in  storage  by  one  Chicago  firm  is  shown  in  Figure 
3.  Without  question  this  speculative  buying  steadies  the 
price  during  the  spring  months  of  excessive  supply,  distributes 
the  consumption  more  evenly  through  the  year,  and  secures 
for  the  producers  a  higher  return  for  their  eggs  than  could  be 
secured  without  storage. 

The  stored  egg  is  much  less  valuable  in  winter  than  is  the 
fresh  supply.  The  lower  price  curve  shown  for  a  few  winter 
months  in  Figure  2  shows  the  prices  of  refrigerator  eggs.  It 
will  be  noted  that  there  was  often  a  difference  of  10  cents  per 
dozen  between  the  price  of  fresh  and  of  stored  eggs.  It  should 
also  be  noted  that  the  price  at  which  the  refrigerator  eggs 
were  sold  was  not  very  much  higher  than  the  price  at  which 
they  were  purchased.  There  must,  in  the  long  run,  be 
enough  difference  to  pay  the  actual  costs  of  storage  including 
rent  for  the  warehouse,  losses  due  to  deterioration,  interest  on 
the  money  invested,  insurance,  and  enough  profit  to  induce  a 
business  man  to  give  his  attention  to  this  business  instead  of 
doing  something  else. 

The  thing  of  first  importance  both  to  producer  and  to  con- 
sumer is  an  understanding  of  the  proper  methods  of  handling 
eggs,  proper  methods  on  the  farms,  in  the  country  stores,  in 
transit,  in  cold  storage,  in  the  shop  of  the  city  retailer  and  in 
the  homes  of  the  consumers.  Success  in  holding  a  part  of  the 
eggs  of  the  surplus  season  to  meet  the  demands  of  the  deficit 
season  is  dependent  upon  proper  handling  at  every  point.  It 
is  safe  to  say  that  more  bad  eggs  reach  the  kitchens  of  Amer- 
ica from  other  causes  than  from  too  great  a  length  of  time  in 
cold  storage.  Furthermore,  many  eggs  that  reach  the  kitchen 
in  good  condition  are  allowed  to  deteriorate  in  a  warm  room 
before  the  cook  finds  occasion  to  make  use  of  them.  There  is 
responsibility  all  along  the  line.  Failure  at  any  one  point 
spoils  the  egg. 


SEASONAL  PRICE- VARIATIONS  29 

The  testimony  before  the  Senate  Committee  relative  to 
foods  held  in  cold  storage  was  to  the  effect  that  eggs  produced 
during  hot  weather  will  not,  even  under  most  favorable  con- 
ditions, remain  fit  for  use  over  three  months,  and  that  more 
often  in  less  than  a  month  they  are  unfit  for  human  food. 
This  is  reason  for  not  storing  eggs  more  than  temporarily 
during  the  hot  months,  but  it  does  not  give  basis  for  legisla- 
tion against  the  storage  of  eggs  in  the  cool  months  of  spring 
to  be  kept  over  until  the  period  of  scarcity. 

The  risk  is  great  in  the  storage  of  eggs,  because  of  the  fact 
that  the  whole  supply  must  be  gotten  rid  of  before  the  increase 
in  the  supply  of  fresh  eggs,  or  they  may  become  almost  a 
total  loss.  Note  in  Figure  2  how  the  price  of  refrigerator 
eggs  fell,  in  February,  below  the  price  which  had  been  paid 
for  them  and  then  quotations  ceased.  This  speculative  fea- 
ture is  accentuated  by  the  fact  that  the  period  of  greatest 
scarcity  is  followed  so  closely  and  so  abruptly  by  the  period  of 
maximum  supply,  and  by  the  uncertainty  of  the  time  of  this 
change  owing  to  the  influence  of  the  weather. 

Another  aspect  of  the  storage  of  eggs  worthy  of  considera- 
tion is  the  relatively  long  time  between  the  surplus  period  and 
the  period  of  scarcity.  Vegetables  may  be  stored  late  in  the 
fall  for  winter  use,  but  eggs  must  be  stored  early  in  the  spring 
and  kept  through  all  the  hot  months.  .  .  . 

The  supply  and  the  price  of  butter.  The  relation  of  the 
supply  to  the  price  of  butter  on  the  Chicago  market  is  shown 
by  Figure  4.  The  weekly  supply  is  shown  to  range  from 
fifteen  thousand  to  more  than  one  hundred  thousand  tubs 
per  week.  The  months  of  ;June  and  July  show  the  greatest 
supply  while  the  winter  months  show  a  scarcity  of  butter 
coming  into  Chicago. 

June  and  July  are  the  natural  months  for  storing  butter. 
From  November  to  February  is  the  period  of  short  supply  and 
high  prices.  See  figure  5.  In  order  to  utilize  cold  storage  as 
a  means  of  equalizing  the  supply  retailed  to  consumers, 


30 


SEASONAL  PRICE- VARIATIONS 


a  maximum  period  of  eight  or  nine  months  is  none  too  long. 
The  demand  for  butter  is  relatively  stable.  Butter  is  con- 
sumed from  day  to  day  with  a  high  degree  of  regularity.  To 
meet  the  demand  butter  must  be  produced  in  fairly  even 
quantities  each  month  in  the  year  or  the  surplus  of  one  season 
must  be  stored  to  meet  ther  shortage  of  another.  In  the  one 
case  more  feed  must  be  produced  and  stored  for  purposes  of 


THQUSAfCTUBS 


1 


Figure  4   (upper  part).       Butter,  receipts  and  prices,   Chicago  market;    (lower 
part)  Cheese,  receipts  and  prices,  New  York  market;  Feb.  1909  to  Jan.  1911. 

winter  dairying.  In  the  other  the  cows  may  be  allowed  to 
graze  while  producing  the  maximum  supply  of  milk.  The 
cost  of  milk  and  butter  is  much  lower  where  grazing  is  a  large 
factor  in  the  food  basis  of  the  dairy  herd. 

If  butter  can  be  stored  successfully,  there  can  be  little  ques- 
tion as  to  the  economic  gain  resulting  from  its  storage.  If 
there  is  any  doubt  as  to  the  successful  keeping  of  butter  in 
cold  storage,  great  effort  should  be  expended  in  the  solution 


SEASONAL  PRICE- VARIATIONS 


31 


of  this  problem,  rather  than  to  abolish  the  storage  of  butter 
during  June  and  July  for  consumption  in  the  winter  months. 
This  is  a  matter  of  great  moment  to  the  butter  producers  of 
Wisconsin.  Without  cold  storage  our  dairy  industry  would 
have  to  be  reorganized.  With  the  present  system  of  storing 
the  surplus,  the  price  of  butter  as  shown  in  Figure  4,  holds 
steady  at  a  fair  price  during  June  and  July.  Without  cold 


___      MAR.   I    APR.    I     MAY    |  JUNE  I    JULY    1    AU< 
PER    .•»-»!  .••.. I  .»»•-!  .-)»•»  I  ......  |  ...» 


i  r 


Figure  5.     Cold  storage  of  butter,  by  months,  by  one  Chicago  firm,  in  percentages 
of  total  annual  storage. 


storage  the  supply  would  have  to  be  reduced  during  that 
period,  or  the  bottom  would  go  out  of  the  market. 

Any  influence  which  retards  the  storing  of  butter  during 
the  natural  season  of  surplus  production  will  increase  the 
price  of  butter  during  the  winter  months  and  give  greater  ad- 
vantage to  the  manufacture  of  butter  substitutes.  Some  of 
the  raw  material  for  the  manufacture  of  butter  substitutes  are 
more  abundant  in  the  winter  than  in  the  summer  months. 
Butter  substitutes  are  made  of  farm  products.  To  dis- 
criminate against  them  is  to  damage  one  class  of  farmers  for 
the  benefit  of  another  class.  The  substitute,  however,  should 


32 


SEASONAL  PRICE-  VARIATIONS 


never  be  sold  for  butter.  This  much  the  dairyman  has  every 
right  to  insist  upon.  The  butter  substitute  should  be  sold  for 
exactly  what  it  is  with  its  constituents  marked  on  the  label. 
The  butter  substitute  will  continue  to  be  a  strong  competitor 
of  the  inferior  grades  of  butter  and  may  result  in  a  wider 
range  in  prices  between  first-class  and  the  inferior  grades 
of  butter  than  would  otherwise  exist.  There  is  little  competi- 
tion between  first-grade  butter  and  the  substitute.  The  re- 


I     MAY    I   JUNE  I    JULY    I    AUG.    I  SEPT.  I    OCT^  I    NOV.    I     DEC.    I     JAN.     I    FEB. 


PER 
NT 


I        I        I        I        I 


I        I        I        I        I 


I        I        I        I        I 


"1  !  I  !  !  I 

II  I    I    II    I 


APR    I    MAY    I  JUNE  I    JULY    I    AUG.    i  SEPT  I    OCT    I    NOV    I    DEC    I    JAN.    1    FEB 


Figure  6. 


Milk  brought  to  the  Wisconsin  University  creamery,  by  months,  in 
percentages  of  total  annual  quantity,  three-year  average. 


Bult  may  be  that  the  producers  of  low-grade  butter  will  have 
to  improve  their  methods  or  change  their  occupation.  In  the 
long  run  this  will  be  a  good  thing  both  for  the  producer  and 
the  consumer. 

The  supply  and  price  of  cheese.  The  price  of  cheese 
shows  but  little  variation  during  the  different  seasons  of  the 
year.  The  supply,  however,  is  produced  in  the  summer 
months,  and  the  bulk  of  it  reaches  the  market  during  the  sum- 
mer and  fall.  Figure  4  shows  the  receipts  and  the  price  of 
cheese  on  the  New  York  market  for  two  years.  One  character- 


SEASONAL  PRICE- VARIATIONS  33 

istic  of  cheese  is  that  it  improves  with  age  and  hence  the  price 
of  the  stored  product  is  higher  than  that  of  the  fresh  sup- 
ply. This  is  illustrated  in  the  chart  where  there  are  two  sets 
of  price  dots,  in  April,  1910,  the  upper  being  quotations  for 
old  cheese,  the  lower  for  new.  Contrast  this  with  the  situa- 
tion on  the  egg  market  where  the  reverse  is  true.  (Figure 
2.). 


MARKETING  OF  FARM  PRODUCTS 

[THERE  is  here  reprinted  the  greater  part  of  a  paper  on  "Methods 
and  Costs  of  Marketing,"  by  Frank  Andrews,  in  the  Yearbook  of 
Department  of  Agriculture  (U.  S.)  for  1909,  pp.  161-172.] 

Finding  a  market;  selling  in  transit.  One  of  the  primi- 
tive ways  of  finding  a  market  is  for  the  farmer  to  go  with  his 
wares  from  house  to  house,  or  from  store  to  store,  making  in- 
quiry until  a  purchaser  is  found.  An  application  of  this 
simple  plan  is  made  on  a  large  scale  in  the  marketing  of  live 
stock.  A  car  of  cattle  consigned  from  a  Kansas  shipping 
point  to  Chicago  may  be  unloaded  and  placed  on  sale  at 
Omaha  or  Kansas  City.  In  case  no  sale  is  made  at  one  of 
these  stopping  places  the  stock  is  forwarded  to  Chicago. 
This  practice  is  common  on  most  of  the  important  live-stock 
routes  of  the  United  States. 

Grain  also  frequently  changes  hands  at  an  intermediate 
market  through  which  it  passes,  and  the  cars  thus  sold  may  he 
forwarded  to  destinations  selected  by  the  new  owners.  Regu- 
lar quotations  of  prices  are  made  at  Chicago  and  other  cities 
for  grain  in  cars  billed  through  to  eastern  markets  from  ship- 
ping points  in  the  Middle  West.  Wheat  raised  in  the  Cana- 
dian northwest  and  shipped  to  the  seaboard  through  North  Da- 
kota and  Minnesota,  for  reentry  into  Canada  by  way  of  the 
Great  Lakes,  often  changes  hands  at  Duluth. 

Diversion  of  shipments.  Another  method  of  searching  for 
a  market  is  that  of  diverting  a  consignment  to  a  destination 
other  than  the  one  first  named  in  the  shipping  papers.  An 
illustration  of  this  is  the  practice  common  in  the  grain  ex- 
porting business  of  the  Pacific  Coast.  It  is  usual  for  a  cargo 
of  wheat  or  barley  sent  from  this  coast  to  Europe  to  be  con- 

34 


MARKETING  OF  FARM  PRODUCTS  35 

signed  "for  orders"  to  some  port  in  the  British  Isles,  as 
Queenstown,  Falmouth,  or  Plymouth.  After  the  vessel 
starts,  the  exporter  tries  to  have  a  purchaser  ready  to  bargain 
for  the  cargo  when  it  reaches  the  port  of  call.  The  voyage 
around  Cape  Horn  takes  three  or  four  months  and  this  time 
is  allowed  the  exporter  for  finding  a  suitable  market.  On  its 
arrival  at  the  port  of  call,  the  vessel  receives  orders  as  to  the 
port  at  which  the  grain  is  to  be  discharged. 

A  similar  plan  is  followed  in  shipping  fruit  by  rail  from 
California  to  the  East.  Two  of  the  diversion  points  on  these 
routes  are  Council  Bluffs,  Iowa,  and  Minnesota  Transfer,  a 
freight  yard  between  St.  Paul  and  Minneapolis. 

Other  important  instances  of  this  practice  of  diverting  a 
consignment  en  route  are  afforded  in  the  movement  of  fruits 
and  vegetables  from  Southern  States.  A  commission  firm, 
whose  head  office  is  in  Pittsburg,  distributes  its  marketings  in 
this  way.  On  receipt  of  a  telegram,  say,  from  a  Georgia  ship- 
per, announcing  that  he  has  a  car  ready  to  move,  the  head  of- 
fice of  this  firm  decides  at  once  the  general  direction  for  the 
car  to  go.  If  the  West  promises  the  best  markets  for  the 
next  several  days,  the  shipper  may  be  notified  to  consign  to 
Cincinnati,  or  if  the  car  is  to  go  to  an  Eastern  city,  the  con- 
signment may  be  made  to  Potomac  Yard,  a  freight  transfer 
point  on  the  Potomac  River  opposite  "Washington,  D.  C.  At 
each  of  these  diversion  points  a  representative  of  the  commis- 
sion firm  opens  the  cars,  inspects  the  contents,  and  reports  the 
results  by  telegraph  or  telephone  to  the  Pittsburg  office,  which 
is  kept  informed  of  market  conditions  in  different  cities.  The 
agent  at  the  diversion  point  will  then  receive  orders  as  to  the 
final  destination  of  the  car.  Among  the  diversion  points 
used  for  shipments  of  produce  from  the  Southwest  are  Kan- 
sas City,  St.  Louis,  and  Chicago. 

Public  city  markets.  Public  market  places  are  established 
in  a  number  of  cities  and  towns  and  in  these  places  consumers 
may  buy  such  articles  as  fruit,  vegetables,  dairy  products, 
poultry,  and  eggs  direct  from  farmers  as  well  as  from  dealers. 


36  MARKETING  OF  FARM  PRODUCTS 

In  recent  years  there  has  been  a  tendency  in  some  markets,  as 
at  Baltimore,  Norfolk,  and  "Washington,  for  practically  all  of 
the  stalls  to  be  used  by  dealers,  while  the  producers  occupy 
places  along  the  neighboring  sidewalks. 

Market  places  are  owned  sometimes  by  city  governments 
and  sometimes  by  private  corporations.  In  Washington,  D. 
C.,  the  largest  markets  are  under  private  ownership,  while  in 
Baltimore  the  largest  markets  belong  to  the  city.  In  York, 
Pa.,  there  is  one  market  owned  by  the  city  and  five  by  private 
parties. 

At  some  markets  the  only  accommodations  are  those  af- 
forded by  an  open  square,  as  one  of  the  markets  at  Omaha, 
Neb.,  and  one  at  Richmond,  Ind. ;  other  places  have  open 
sheds,  and  still  others  are  furnished  with  market  houses. 
Some  of  the  most  noted  markets  of  the  United  States  are  held 
under  open  sheds;  the  French  Market  in  New  Orleans  and 
Lexington  Market  in  Baltimore  are  both  of  this  type.  Among 
the  numerous  cities  which  have  market  houses  are  Pittsburg, 
Pa.,  Mobile,  Ala.,  Buffalo,  N.  Y.,  Erie,  Pa.,  Salem,  Mass., 
Washington,  D.  C.,  Richmond,  Va.,  Norfolk,  Va.,  and  Balti- 
more, Md. 

The  charges  for  space  along  the  curb  at  some  markets  range 
from  10  cents  to  75  cents  per  day  for  each  wagon,  and  by  the 
year  from  $10  to  $50  or  more.  At  Atchison,  Kan.,  and  also  at 
San  Antonio,  Tex.,  a  charge  of  10  cents  a  day  is  made  for  each 
wagon  occupying  a  place  in  the  market,  while  at  Buffalo,  N. 
Y.,  the  rate  for  a  one-horse  vehicle  is  15  cents  and  for  a  two- 
horse  wagon  25  cents  per  day,  and  at  Norfolk,  Va.,  these  rates 
are  respectively  10  and  15  cents.  At  Richmond,  Ind.,  and 
Omaha,  Neb.,  spaces  in  the  market  are  sold  at  auction  to  the 
highest  bidder. 

Producers  sell  in  large  quantities  to  dealers  and  deliver  to 
commission  men  at  public  market  places  similar  to  the  ones 
devoted  to  retail  trade,  and  in  many  of  the  retail  markets 
wholesale  dealing  is  also  done.  The  public  market  places  of 
Omaha,  New  York,  and  Denver  are  used  almost  exclusively; 


MARKETING  OF  FARM  PRODUCTS  3T 

for  wholesale  trade,  and  so  are  wharf  markets  in  Pittsburg, 
Baltimore,  and  Washington. 

Warehouses.  Another  institution  which  aids  the  producer 
to  dispose  of  his  crop  is  the  public  warehouse.  Illustrations 
of  this  are  afforded  in  marketing  tobacco  in  Virginia  and 
North  Carolina,  wool  from  the  northern  Rocky  Mountain 
States,  and  to  some  extent  rice  in  Louisiana  and  Texas.  The 
growers,  or  their  representatives,  with  their  produce,  meet 
the  buyers  at  these  warehouses.  The  method  of  operation  in 
Virginia  may  be  illustrated  by  the  conditions  at  Richmond. 
The  warehouses  here  are  listed  and  market  begins  in  the  first 
one  on  the  list  for  a  certain  day.  After  sales  have  been  made 
in  the  first  buyers  go  to  the  second,  and  so  on  throughout  the 
list.  Planters  arrange  their  tobacco  in  piles  along  the  floor 
of  the  warehouse,  each  pile  being  identified  by  a  label  or  card 
attached  to  it.  As  the  piles  are  auctioned  off  each  buyer  has 
some  mark  of  identification  attached  to  the  pile  purchased,  and 
a  record  is  made  by  the  warehouse  authorities.  On  leaving 
the  warehouse  the  planter  obtains  his  money  from  the  ware- 
house manager,  who  in  turn  makes  up  a  bill  against  each  buyer 
for  the  total  amount  of  tobacco  he  has  bought  that  day. 
After  the  last  warehouse  sale  has  been  made  the  market  is 
continued  at  the  Tobacco  Exchange,  where  dealing  is  based 
upon  samples  displayed  there.  The  importance  of  this  system 
may  be  judged  by  the  quantity  of  tobacco  sold  in  these  ware- 
houses by  farmers.  The  total  sales  by  farmers  at  twenty-one 
Virginia  markets  having  tobacco  warehouses  amounted  dur- 
ing the  nine  months  ending  June  30,  1909,  practically  the 
entire  season,  to  116,000,000  pounds;  and  in  the  fiscal  year 
ending  July  31,  1909,  the  sales  by  planters  in  the  warehouses 
of  forty-five  North  Carolina  markets  amounted  to  142,000,- 
000  pounds. 

In  selling  rice  at  warehouses  or  on  the  New  Orleans  Board 
of  Trade,  sealed  bids  are  submitted  by  the  buyers  and  the 
sale  is  expected  to  be  made  to  the  highest  bidder.  In  cities 
as  far  west  as  Chicago  it  is  a  common  practice  to  sell  fruit  in 


38         MARKETING  OF  FARM  PRODUCTS 

warehouses  which  may  be  owned  by  railroads  and  used  by 
auction  companies.  A  consignment  of  California  or  Georgia 
fruit,  for  instance,  will  be  sent  to  a  commission  merchant  in 
New  York,  who  will  have  the  fruit  sold  to  his  account  by  the 
auction  company. 

Stock  yards.  The  largest  wholesale  market  places  open  to 
the  producers  are  the  stock  yards  in  such  cities  as  Chicago, 
Kansas  City,  Omaha,  and  St.  Louis.  Sales  in  these  stock 
yards  may  be  made  direct  by  the  owner  of  the  stock  to  the 
ultimate  purchaser,  but  it  is  customary  for  transactions  to  be 
made  through  commission  men. 

Different  classes  of  middlemen ;  traveling  buyers.  Selling 
to  buyers  who  come  to  the  farm  is  practised  to  some  degree  in 
many  parts  of  the  United  States.  Traveling  hucksters  in  many 
regions  go  from  farm  to  farm  gathering  eggs,  butter,  poultry, 
calves,  and  similar  commodities,  which  they  sell  to  shippers, 
jobbers,  or  retail  dealers.  Agents  of  large  merchants  go  to 
farms  on  the  Pacific  coast  to  buy  hops,  to  ranges  in  the  Rocky 
Mountains  for  wool,  to  plantations  in  Louisiana  and  south- 
eastern Texas  to  bargain  for  rice,  and  to  the  orchards  of  the 
apple-producing  states  east  of  the  Rocky  Mountains.  The  cat- 
tle buyer  also  is  a  frequent  visitor  at  many  farms,  especially 
where  stock  raising  is  a  secondary  industry. 

General  merchants.  One  of  the  most  important  persons 
in  the  distribution  of  some  products  is  the  merchant  of  the 
town  or  the  rural  community.  He  is  often  the  first  receiver 
of  such  products  as  eggs,  farm-made  butter,  poultry,  wool, 
hides,  and  sometimes  cotton,  grain,  and  hay.  It  was  the 
custom  a  number  of  years  ago,  possibly  more  so  than  at  pres- 
ent, for  a  local  merchant  to  credit  a  planter  of  cotton  or  rice 
with  supplies  for  a  crop  year,  and  to  take  a  lien  upon  a 
growing  crop  to  cover  the  value  of  the  merchandise  thus  sold. 
In  such  a  case  it  was  frequently  the  custom  for  the  crop  when 
ready  for  market  to  be  turned  over  to  the  merchant  by  the 
planter,  who  received  the  difference  between  his  debt  and  the 
proceeds  from  the  crop.  The  importance  of  the  country  mer- 


MARKETING  OF  FARM  PRODUCTS          39 

chant  as  a  distributing  factor  in  some  regions  is  diminishing, 
for  he  has  been  supplanted  to  a  greater  or  less  degree  by 
dealers  in  special  products. 

Local  buyers  of  special  products.  In  the  regions  where 
grain  is  a  staple  product  the  tendency  has  been  for  the  store- 
keeper to  be  displaced  by  the  grain  dealer  and  the  local 
elevator  man.  Among  other  examples  of  local  buyers  of  spe- 
cial produce  are  the  California  fruit  packer,  who  buys  from 
growers;  the  egg  and  poultry  shipper  in  the  Middle  West, 
whose  purchases  are  made  from  country  merchants  and  who 
ships  by  carload  lots  to  wholesale  dealers ;  the  San  Francisco 
wool  merchant,  who  buys  on  the  range  and  sells  in  the  East; 
the  poultry  packer  in  the  North  Central  States,  who  buys  live 
fowls,  slaughters  them,  and  consigns  to  eastern  cities ;  and  the 
11  track  buyers"  of  watermelons  in  the  region  near  San  An- 
tonio, Tex.,  of  peaches  in  Georgia,  and  of  hogs  in  the  corn 
belt. 

Commission  dealers.  The  commission  dealer  is  the  agent 
through  whom  a  large  amount  of  produce  is  sold  for  farmers 
or  country  shippers.  The  commission  man  usually  repre- 
sents the  seller,  but  there  are  instances  where  he  serves  as 
agent  of  the  buyer,  as  in  some  sales  of  live  stock  to  distant 
buyers  or  in  the  purchase  of  Pacific  coast  hops  for  eastern 
dealers. 

In  addition  to  serving  as  agent  in  making  a  sale,  the  com- 
mission man  may  advance  money  to  a  producer  or  to  a  country 
buyer,  as  when  a  live-stock  commission  firm  loans  money  to 
feeders  or  when  a  grain-commission  firm  supplies  a  local  grain 
dealer  with  sufficient  cash  to  begin  his  season 's  purchases.  An- 
other phase  of  commission  dealing  is  that  engaged  in  by  rice 
and  cotton  factors,  who  advance  money  on  crop  liens,  and  to 
whom  these  products  are  frequently  consigned  to  be  sold  on 
commission.  In  some  States,  for  instance  in  South  Carolina, 
banks  are  reported  to  be  taking  the  place  of  the  cotton  factors 
in  making  loans,  and  the  presence  of  buyers  and  neighboring 
mills  enables  planters  sometimes  to  market  their  cotton  with- 


40  MARKETING  OF  FARM  PRODUCTS 

out  the  aid  of  factors.  Another  class  of  factors  are  those  in 
the  Baltimore  tobacco  trade,  who  receive  consignments,  for  in- 
stance, from  farmers  in  Maryland  and  Ohio,  and  who  sell  to 
exporters. 

Commission  for  selling.1  Rates  of  commission  for  selling 
fruits  and  vegetables  may  range  from  5  to  10  per  cent,  of  the 
gross  proceeds  of  sales.  A  cooperative  organization  of  farm- 
ers is  sometimes  able  to  retain  part  of  this  selling  commission 
for  its  own  use.  The  members  of  one  southern  fruit  associa- 
tion paid  for  selling  their  products  10  per  cent,  of  gross  pro- 
ceeds, of  which  generally  6  per  cent,  was  given  the  northern 
commission  dealer  and  4  per  cent,  was  retained  in  the  treasury 
of  the  association.  There  are  numerous  other  instances  of 
commissions  based  upon  proceeds  of  sales,  among  which  may 
be  mentioned  the  charges  for  selling  rice  at  New  Orleans  and 
clover  seed  at  Milwaukee. 

For  selling  grain  and  live  stock  at  large  markets  the  rates 
of  commission  are  based  generally  upon  the  quantity  sold  and 
not  upon  proceeds  of  the  sales.  The  rules  of  the  Minneapolis 
Chamber  of  Commerce  fix  the  rate  for  selling  wheat,  barley, 
or  rye  at  1  cent  per  bushel,  corn  or  oats  at  one-half  cent  per 
bushel,  and  hay  at  50  cents  per  ton.  These  rates  apply  to 
produce  received  under  usual  conditions.  About  the  same 
charges  prevail  in  other  large  markets. 

In  the  tobacco  warehouses  of  Virginia  and  North  Carolina 
auctioneers  '  charges  are  determined  by  the  number  and  weight 
of  piles  sold,  and  the  "commission  agents "  who  buy  hops 
for  wholesale  dealers  are  frequently  paid  from  one-fourth  to 
one-half  cent  per  pound. 

Exporters.  The  exporter's  business  has  some  points  in 
common  with  that  of  the  local  buyer  in  domestic  trade ;  both 
classes  of  middlemen  obtain  their  wares  from  sources  rela- 
tively near  at  hand,  and  sell  them  in  a  distant  market,  either 
direct  or  through  commission  dealers.  The  exporter  has  to 
keep  informed  not  only  concerning  the  commercial  regulations 

i[  Paragraphs  from  p.  162,  here  inserted.] 


MARKETING  OF  FARM  PRODUCTS  41 

and  market  conditions  of  various  countries,  but  also  in  regard 
to  freight  rates  along  the  various  lines  of  transportation  over 
which  his  goods  are  apt  to  be  carried.  The  fluctuations  of 
freight  rates,  especially  by  water,  make  the  cost  of  transporta- 
tion lowest  sometimes  over  one  route  and  sometimes  over  an- 
other. In  shipping  wheat  from  Nebraska  to  Liverpool  the 
grain  may  be  sent  through  one  of  eight  or  ten  large  seaports 
ranging  from  Montreal  around  the  coast  to  Galveston ;  and  at 
a  number  of  these  ports  tramp  ships  may  be  bidding  against 
the  regular  lines  for  cargo.  In  case  New  York  is  selected 
as  the  port  of  shipment,  the  grain  may  be  sent  thither  direct 
from  Nebraska,  or  it  may  be  transferred  to  a  lake  steamer  at 
Chicago,  to  be  reloaded  at  Buffalo  either  on  canal  boats  or  rail- 
road cars. 

In  the  grain  business  of  the  Pacific  Northwest  and  in  the 
cotton  trade  of  the  South  it  is  not  uncommon  for  the  same 
firm  that  buys  from  the  farmer  to  sell  to  the  European  miller. 
A  grain  exporter  of  Portland,  Tacoma,  or  Seattle  sometimes 
owns  as  many  as  200  warehouses  at  different  country  railroad 
stations,  and  his  agents  at  these  stations  buy  direct  from  the 
farmers  and  consign  to  the  seaport;  while  in  Europe  agents 
or  correspondents  of  the  same  firm  seek  out  buyers  for  the 
grain.  But  east  of  the  Rocky  Mountains  the  exporter  of 
wheat,  while  he  may  sell  through  his  representatives  to  foreign 
mills  or  dealers,  in  many  instances  does  not  buy  either  from 
the  producer  or  the  country  grain  dealer.  His  supply  is  often 
furnished  by  commission  men  or  large  dealers. 

In  addition  to  the  five  classes  of  middlemen  just  discussed, 
others  of  importance  in  the  distribution  of  farm  products  are 
the  jobber,  who  buys  and  sells  in  wholesale  lots,  and  the  retail 
dealer,  the  last  of  the  series  of  middlemen  who  handle  the 
commodity  on  its  way  from  the  producer  to  the  consumer. 

Direct  sales  without  aid  of  middlemen.  Common  in- 
stances of  the  producer  selling  direct  and  delivering  to  the 
door  of  the  consumer  occur  in  the  marketing  of  milk,  butter, 
eggs,  poultry,  fruits,  vegetables,  hay,  and  other  farm  products. 


42  MARKETING  OF  FARM  PRODUCTS 

Milk  producers  in  the  neighborhood  of  Erie,  Pa,,  through  their 
organization,  deliver  milk  direct  to  consumers.  Numerous 
poultry  raisers  sell  exhibition  stock  direct  to  other  poultry 
raisers.  Eggs  for  hatching  are  also  sold  in  this  way.  Regis- 
tered  cattle  are  often  sold  at  auctions,  held  periodically  by  the 
owners.  Ketail  sales  of  fruit,  vegetables,  poultry,  eggs,  and 
dairy  products  direct  by  producer  to  consumer  are  made  also 
in  public  market  places. 

In  a  sense,  a  mill  or  a  factory  may  be  regarded  as  a  con- 
sumer. An  old  instance  of  the  producer  selling  in  wholesale 
lots  direct  to  the  consumer  is  that  of  the  farmer  taking  his 
grain  to  a  near-by  mill.  A  sale  of  sugar  beets  to  a  neighbor- 
ing factory  is  another  example  of  direct  bargaining  between 
producer  and  consumer ;  so  is  the  sale  and  delivery  of  milk  to 
a  creamery,  apples  to  an  evaporating  establishment,  and  fruits 
and  vegetables  to  neighboring  canning  houses. 

Selling  at  wholesale  direct  to  consumer  is  illustrated  also  by 
a  plan  recently  adopted  by  wool  growers  of  the  northern 
Rocky  Mountain  region.  Large  warehouses  are  established  at 
Chicago  and  Omaha  to  which  wool  is  consigned  to  be  sold  by 
the  growers  or  their  representatives.  Manufacturers  as  well 
as  dealers  are  among  the  buyers,  so  that  part  of  the  sales  are 
made  direct  by  the  growers  or  their  agents  to  consumers.  Not 
only  are  direct  sales  by  producer  to  manufacturer  made  in  the 
warehouses,  but  on  the  range  itself,  for  since  the  establishment 
of  warehouses  manufacturers  and  dealers  have  continued  to 
send  some  of  their  buyers  to  the  range. 

One  of  the  prominent  woolgrowers  of  Wyoming  reports  that 
since  the  establishment  of  the  large  warehouses  prices  on  the 
range  have  been  much  better.  For  the  sake  of  supporting  the 
warehouses  the  stockholders  agree  to  pay  into  the  association 
a  certain  percentage  of  their  gross  sales  of  wool,  whether  sold 
on  the  range  or  in  the  warehouses.  This  method  of  support- 
ing a  cooperative  institution  is  adopted  also  by  the  Georgia 
Fruit  Growers'  Exchange. 

Transfers  through  one  middleman.    A  large  number  of 


MARKETING  OF  FARM  PRODUCTS  43 

transactions  are  made  in  which  only  one  middleman  assists  in 
the  transfer  from  producer  to  consumer.  A  common  example 
is  that  of  the  town  merchant  who  buys  produce  from  farmers 
and  sells  it  to  consumers. 

Among  the  other  instances  of  a  single  middleman  interven- 
ing between  producer  and  consumer  may  be  noted  the  com- 
mission man  at  a  large  market  who  receives  consignments  of 
live  stock  from  farmers  and  sells  to  packers;  the  factor  to 
whom  the  planter  consigns  his  rice  or  cotton  and  from  whom 
purchases  are  often  made  by  millers;  the  warehouseman  who 
manages  the  sale  of  a  Virginia  planter's  tobacco;  and  the 
1 1  line, ' '  or  system,  of  elevators,  which  buys  grain  from  farm- 
ers and  sells  to  millers.  Pennsylvania  tobacco  is  often  bought 
at  the  farm  by  a  dealer  who  sells  to  manufacturers. 

It  is  a  common  practice  in  a  number  of  cities — for  instance, 
New  York,  Philadelphia,  and  Washington — for  milk  to  be 
handled  by.  one  middleman,  namely,  the  city  retailer,  who 
buys  direct  from  the  producer.  A  considerable  part  of  the 
supply  of  New  York  City  is  delivered  at  country  shipping 
points  to  stations  or  "creameries"  owned  by  New  York  deal- 
ers, who  sell  in  the  city  at  retail. 

An  organization  which  brings  the  grain  producer  nearer 
the  great  mills  is  the  farmers'  elevator.  The  plan  of  its  opera- 
tion has  some  features  similar  to  that  of  the  wool  warehouses 
of  Chicago  and  Omaha.  Farmers  cooperate  in  building  an 
elevator  and  in  employing  a  manager. 

Marketing  through  two  middlemen.  The  intervention  of 
two  middlemen  between  producer  and  consumer  is  a  common 
occurrence.  The  farmer  may  consign  to  a  distant  commission 
man  or  sell  to  a  local  dealer,  and  the  next  transaction  of  the 
series  may  be  the  sale  to  a  retail  merchant  whose  customers 
are  consumers.  A  common  way  of  marketing  live  stock  is  for 
the  farmer  to  sell  to  a  buyer  who  ships  to  a  commission  mer- 
chant at  a  large  packing  center,  where  the  animals  are  sold 
frequently  to  packers.  Fruits  and  vegetables  are  marketed 
often  through  the  aid  of  two  middlemen,  the  city  commission 


4A  MARKETING  OF  FARM  PRODUCTS 

dealer  and  the  retail  merchant.  Two  middlemen  are  involved 
also  in  some  sales  of  produce  made  by  farmers*  cooperative  so- 
cieties; the  first,  unless  the  sales  manager  of  a  society  be 
classed  as  a  middleman,  being  the  wholesale  or  the  commission 
dealer,  and  the  second  the  retail  merchant. 

The  milk  supply  of  Boston  is  distributed  largely  through 
two  successive  middlemen,  the  wholesale  and  the  retail  dealer ; 
and  another  series  of  two  middlemen  consists  of  the  traveling 
huckster  in  Massachusetts  and  elsewhere,  who  buys  poultry 
from  farmers  and  sells  to  retail  merchants.  Hop  growers  of 
the  Pacific  coast  frequently  sell  direct  to  commission  men  who 
buy  for  large  dealers,  and  these  dealers  in  turn  make  part  of 
their  sales  to  brewers. 

Transactions  involving  three  or  more  middlemen.  A 
series  of  three  middlemen  may  include,  first,  the  local  buyer 
or  shipper;  second,  the  commission  dealer  or  the  wholesale 
merchant ;  and  third,  the  retail  merchant.  Watermelons  from 
the  region  of  San  Antonio,  Tex.,  are  reported  to  be  distributed 
in  considerable  quantities  through  such  a  series  of  dealers. 
Traveling  hucksters  in  Missouri  buy  poultry  from  farmers  and 
sell  occasionally  to  merchants  or  to  commission  firms,  who  in 
turn  include  among  their  customers  some  retail  dealers. 
Apple  dealers  in  this  country  purchase  the  fruit  from  grow- 
ers and  sell  to  United  States  agents  of  German  importers. 
The  third  in  this  series  of  middlemen  is  the  retail  dealer  in 
Germany. 

In  the  sale  of  fruit  by  auction,  as  is  common  in  large  cities 
east  of  the  Mississippi  Kiver,  the  auctioneer  is  an  additional 
middleman.  He  may  sell  for  a  commission  dealer  to  whom 
the  consignment  may  have  been  made  by  a  country  buyer ;  and 
the  purchaser  at  such  an  auction  may  be  a  jobber,  who  in  turn 
sells  to  a  retail  merchant.  Five  middlemen  are  thus  con- 
cerned in  such  a  transaction. 

Another  instance  of  a  long  series  of  middlemen  may  be  had 
in  some  exports  of  wheat  from  North  Dakota  to  England. 
The  grain  may  be  bought  first  by  a  country  grain  dealer,  con- 


MARKETING  OF  FARM  PRODUCTS  45 

signed  to  a  middleman  at  Dulutti,  bought  there  by  an  ex- 
porter, who  in  turn  sells  through  his  European  agent  to  a 
foreign  grain  dealer.  The  last  of  the  series  of  transactions 
may  be  the  sale  by  the  foreign  merchant  to  the  miller.  Hay, 
in  many  parts  of  the  country,  is  frequently  bought  by  a  local 
merchant  who  sells  through  a  commission  man  to  a  wholesale 
dealer.  Or  again,  the  commission  man  may  sell  to  an  ex- 
porter who  ships  direct  to  an  importer  in  Cuba,  and  one  or 
more  additional  sales  may  be  made  before  the  hay  reaches  the 
last  purchaser. 

Onions  raised  in  Kentucky  are  sometimes  bought  by  a  local 
merchant  and  shipped  to  Louisville ;  here  they  may  be  put  in 
sacks  and  consigned  to  a  New  York  wholesaler  or  a  com- 
mission man,  who  in  turn  sells  to  a  New  York  retailer.  Eggs 
and  poultry  frequently  pass  through  the  hands  of  at  least  four 
middlemen. 

The  marketing  of  clover  seed  is  an  example  of  a  transfer 
from  one  farmer  to  another  through  a  number  of  middlemen. 
The  first  middleman  may  be  an  Indiana  shipper  who  consigns 
to  a  commission  dealer  in  Toledo;  here  the  seed  may  be  pur- 
chased by  a  merchant  and  shipped  to  a  wholesale  dealer  in  a 
distant  city;  the  last  middleman  in  this  course  of  distribu- 
tion may  be  a  country  storekeeper  or  a  city  dealer  in  agricul- 
tural supplies. 

Terms  of  sales.  Reference  is  made  in  other  parts  of  this 
article  to  conditions  affecting  payments  for  produce.  Cash 
payments,  as  has  been  said,  are  most  general,  but  when  a 
farmer  is  to  make  a  delivery  to  a  distant  purchaser,  it  is  often 
the  practice  for  the  payment  to  be  made  by  means  of  a  draft 
attached  to  a  bill  of  lading.  By  selling  for  a  definite  price 
fixed  before  the  sale  is  made,  the  farmer  knows  at  the  time  of 
sale  the  exact  amount  he  is  to  receive,  but  he  may  be  at  a  dis- 
advantage owing  to  lack  of  competition  among  buyers  or  to 
his  failure  to  keep  posted  concerning  market  conditions.  On 
the  other  hand,  if  he  ships  his  produce  to  be  sold  on  commis- 
sion, he  risks  being  disappointed  with  the  proceeds  of  the  sale. 


46  MARKETING  OF  FARM  PRODUCTS 

Some  of  the  disadvantages  of  selling  at  or  near  the  farm  are 
being  overcome  by  improved  conditions  which  open  to  the 
farmer  other  markets  in  case  the  one  at  home  is  not  satisfac- 
tory. The  use  of  the  telephone  enables  him  to  know  the  latest 
market  news,  and  the  service  of  a  cooperative  selling  associa- 
tion makes  it  easier  for  him  to  take  advantage  of  favorable 
prices  in  distant  markets. 

Some  produce  is  sold  in  advance  of  the  harvest;  for  in- 
stance, in  New  York,  Maryland,  and  Michigan  vegetables  are 
grown  for  canning  houses  under  contracts  made  sometimes  as 
early  as  the  preceding  midwinter.  The  terms  of  these  con- 
tracts vary.  According  to  some  of  them  the  canner  furnishes 
the  seed  and  fertilizer  and  agrees  to  make  advances  of  money 
during  the  season  and  a  final  settlement  at  the  end.  Con- 
tracts providing  for  the  sale  of  three  successive  crops  at  a  fixed 
price  are  reported  to  have  been  made  in  1908  with  some  hop 
growers  of  Washington  and  Oregon. 

Cooperative  selling  associations.  The  number  of  farmers' 
cooperative  associations  through  which  produce  is  marketed  is 
increasing  continually.  Various  fruits  and  vegetables,  grain, 
tobacco,  peanuts,  rice,  and  other  products  are  sold  by  the 
agents  of  such  associations.  In  the  State  of  Colorado  alone 
there  were  in  1907  at  least  thirty-three  such  organizations  and 
the  products  handled  by  them  included  cantaloupes,  peaches, 
honey,  potatoes,  and  miscellaneous  fruits  and  vegetables.  A 
number  of  California  associations  have  united  to  form  larger 
bodies  through  which  sales  are  made,  while  the  local  organi- 
zations pack  and  load  the  produce. 

At  least  two  produce  exchanges  have  been  conducted  suc- 
cessfully for  a  number  of  years  by  truck  growers  of  the  penin- 
sula lying  between  the  Chesapeake  Bay  and  the  Atlantic 
Ocean.  The  cranberry  crop  is  marketed  largely  through  farm- 
ers' organizations,  and  similar  associations,  too  numerous  to  be 
listed  here,  are  improving  conditions  of  marketing  in  other 
parts  of  the  United  States.  The  extent  to  which  the  coopera- 
tive movement  among  farmers  is  distributed  may  be  illus- 


MARKETING  OP  FARM  PRODUCTS  47 

trated  by  the  apples  from  Hood  River,  Ore.,  which  are 
marketed  in  this  way ;  fruits  and  vegetables  from  Yuma  Val- 
ley, Ariz.;  celery  from  Florida,  cantaloupes  from  Tennessee, 
onions  from  central  and  western  Texas,  tobacco  from  Ken- 
tucky, grain  from  Minnesota  and  North  Dakota,  rice  from 
Texas,  peaches  from  Georgia,  vegetables  from  Louisiana,  and 
various  articles  from  Michigan,  in  addition  to  a  large  number 
of  products  from  California. 

Two  of  the  important  results  of  cooperation  in  marketing 
have  been  the  shipment  of  better  grades  of  fruits  and  vege- 
tables, and  the  command  by  the  farmers  of  a  greater  influence 
in  the  market  on  account  of  large  quantities  of  produce  being 
controlled  by  a  single  authority. 


FARM  PRODUCTS  AND  CONSUMERS'  PRICES 

[THE  following  passages  are  from  the  report  of  the  Secretary  of 
Agriculture  (U.  S.)  for  the  year  1910,  pp.  9-28.] 

Production  of  1910.  Year  after  year  it  has  been  my  privi- 
lege to  record  " another  most  prosperous  year  in  agriculture/' 
Sometimes  the  increased  prosperity  has  been  due  to  weather 
unusually  favorable  to  agriculture,  sometimes  to  higher  values 
caused  either  by  a  greater  yield  or  demand  or  by  greater 
money  returns  due  to  a  scant  production ;  but  usually  the  ad- 
vance in  farmers'  prosperity  has  been  in  spite  of  various  draw- 
backs. It  would  seem  that  this  country  is  so  large  in  extent 
and  has  such  varied  climate,  soil,  and  crops  that  no  nation- 
wide calamity  can  befall  its  farmers.  Combined  with  this 
strong  position  in  agriculture,  the  nation  may  now  begin  to 
derive  increased  confidence  in  its  agriculture  because  of  im- 
provements that  are  permeating  the  whole  country  in  conse- 
quence of  a  grand  movement  sustained  by  the  National  Depart- 
ment of  Agriculture  and  the  various  State  agencies. 

Value  of  all  products.  Nothing  short  of  omniscience  can 
grasp  the  value  of  the  farm  products  of  this  year.  At  no  time 
in  the  world's  history  has  a  country  produced  farm  products 
within  one  year  with  a  value  reaching  $8,926,000,000,  which  is 
the  value  of  the  agricultural  products  of  this  country  for 
1910.  This  amount  is  larger  than  that  of  1909  by  $305,000,- 
000,  an  amount  of  increase  over  the  preceding  which  is  small 
for  the  more  recent  years. 

The  value  of  farm  products  from  1899  to  the  present  year 
has  been  progressive  without  interruption.  If  the  value  of 
that  census  year  be  regarded  as  100,  the  value  of  the  agri- 
cultural products  was  as  follows : 


FARM  PRODUCTS  AND  PRICES  49 

1899  100.0  1903  124.8  1907  .               .  158.7 

1900  106.4  1904  129.8  1908  167.3 

1901  112.7  1906  143.4  1909  182.8 

1902  119.1  1905  133.  1910  189.2 

The  value  in  1910  is  almost  double  the  value  of  the  crops  of 
the  census  year  eleven  years  preceding.  During  this  period 
of  unexampled  agricultural  production,  a  period  of  twelve 
years  during  which  the  farmers  of  this  country  have  steadily 
advanced  in  prosperity,  in  wealth  and  in  economic  independ- 
ence, in  intelligence  and  a  knowledge  of  agriculture,  the  total 
value  of  farm  products  is  $79,000,000,000.  .  .  . 

Rising  yields  per  acre  [Page  27].  Dividing  the  period 
from  1866  to  1909  into  four  decades  and  a  succeeding  short 
period  of  four  years,  the  yield  per  acre  of  corn  is  shown  by  a 
study  made  in  the  Bureau  of  Statistics  to  have  declined  2.3 
per  cent,  from  the  first  decade  to  the  second,  declined  8.2  per 
cent,  from  the  second  to  the  third,  increased  7.7  per  cent,  from 
the  third  to  the  fourth,  and  increased  7.1  per  cent,  from  the 
fourth  decade  to  the  succeeding  four-year  period. 

For  wheat  an  even  better  showing  is  made,  since  the  figures 
show  a  continuous  increase  in  yield  per  acre,  namely,  3.4  per 
cent,  from  first  decade  to  second,  3.3  from  second  to  third, 
6.3  from  third  to  fourth,  and  9.6  from  fourth  decade  to  final 
four-year  period. 

For  cotton,  the  first  figure,  2.8,  is  a  decline,  but  the  rest  are 
increases,  namely,  2.6,  3.8,  and  0.3. 

For  tobacco,  the  first  figure,  3.4,  is  an  increase,  the  second 
2.0,  is  a  decline,  the  third,  5.2,  is  an  increase,  and  so  also  is 
the  last,  9.7. 

Similar  facts  are  shown  for  six  other  leading  crops,  namely, 
oats,  barley,  rye,  buckwheat,  hay,  and  potatoes.  Not  one  of 
the  ten  crops  named  declined  in  yield  per  acre  from  the  third 
decade  to  the  fourth,  while  oats  was  the  only  one  to  show  a 
decline  from  the  fourth  decade  to  the  last  period  of  four  years. 

The  evidence  is  very  plain  that  the  yields  per  acre  of  our 
crops  are  now  increasing,  and  if  the  facts  were  assembled  in 

4 


50  FARM  PRODUCTS  AND  PRICES 

detail  for  the  States,  it  would  be  found  that  the  percentage  of 
increase  in  yield  in  many  of  them  is  greater  than  the  percent- 
age of  normal  increase  in  population ;  that  is,  the  increase  by 
births  over  deaths  in  the  old  native  element.  Such  is  the  fact 
with  regard  to  wheat  for  the  fourth  decade,  as  compared  with 
the  preceding  one,  in  twenty-six  States,  and  two  of  the  States 
are  all  but  ready  to  join  them.  In  fourteen  States  corn  pro- 
duction per  acre  has  increased  faster  than  the  normal  increase 
of  population  and  this  is  almost  true  of  five  more  States.  The 
number  of  States  in  this  list  in  the  case  of  barley  is  21 ;  rye, 
30 ;  buckwheat,  19 ;  cotton,  3 ;  potatoes,  24 ;  hay,  35 ;  and  more 
or  less  States  are  almost  ready  to  enter  this  list  in  the  case  of 
all  crops. 

A  demand  that  is  more  difficult  to  fulfil  in  production  per 
acre  is  for  an  increase  that  equals  or  exceeds  the  actual  in- 
crease of  population,  including  the  immigrants  and  that  due 
to  the  temporary  high  birth  rate  of  the  foreign  born.  But, 
notwithstanding  the  fact  that  this  difficulty  is  greater  in  the 
United  States  than  it  is  in  all  other  countries  that  have  prac- 
tically ceased  to  take  much  new  land  into  cultivation,  many 
of  the  States  of  this  nation  are  each  maintaining  an  increase 
of  production  in  the  case  of  one  or  more  prominent  crops  that 
is  greater  than  the  actual  increase  of  population.  Ten  States 
are  doing  this  in  the  case  of  corn ;  for  wheat  the  number  is  22 ; 
for  oats,  16 ;  for  cotton  and  tobacco,  1  each ;  for  rye,  21 ;  for 
potatoes,  15 ;  and  for  hay,  25. 

We  cannot  look  for  any  other  result  than  that  the  yields  per 
acre  of  all  our  crops  shall  increase  at  an  even  faster  rate  in  the 
future,  in  view  of  the  intense  interest  with  which  our  people 
are  turning  their  attention  toward  agricultural  improvement. 
If  there  are  certain  forces  at  work  which,  if  unchecked  and 
made  more  prevalent,  will  in  the  future  compel  us  to  bid 
against  the  world  for*  food,  the  counteracting  forces  have 
nevertheless  been  already  set  in  motion,  with  the  promise  of 
increasing  effect. 

Farmer's  share  of  consumer's  cost  [page  19] .    High  prices 


FARM  PRODUCTS  AND  PRICES  51 

was  one  of  the  subjects  of  my  annual  report  of  1909.  It  was 
shown  that  for  many  years  previous  to  about  1897,  or  a  little 
later,  the  prices  of  farm  products  received  by  farmers  were 
even  less  than  the  cost  of  production,  and  often  little  if  any 
above  that  cost,  so  that  during  a  long  period  of  years  the 
farmer  was  not  thriving.  It  was  shown  also  that  in  the  up- 
ward movement,  which  began  about  1897,  the  prices  received 
by  the  farmer  have  advanced  in  greater  degree  than  those  re- 
ceived by  nearly  all  other  classes  of  producers.  That  this 
should  have  been  so  was  merely  a  matter  of  justice  to  the 
farmer  to  equalize  the  reward  of  his  efforts  with  the  rewards 
in  other  lines  of  production. 

Increase  of  beef  prices.  The  price  received  by  the  farmer 
is  one  thing;  the  price  paid  by  the  consumer  is  far  different. 
The  distribution  of  farm  products  from  the  farm  to  consumers 
is  elaborately  organized,  considerably  involved  and  compli- 
cated, and  burdened  with  costly  features.  These  are  exem- 
plified in  my  report  for  1909  by  a  statement  of  the  results  of 
a  special  investigation  into  the  increased  cost  of  fresh  beef 
between  the  slaughterer  and  the  consumer. 

It  was  established  that  in  the  North  Atlantic  States  the  con- 
sumer's price  of  beef  was  31.4  per  cent,  higher  than  the  whole- 
sale price  received  by  the  great  slaughtering  houses;  38  per 
cent,  higher  in  the  South  Atlantic  States;  and  39.4  per  cent, 
higher  in  the  Western  States.  The  average  for  the  United 
States  was  38  per  cent.  It  was  found  that  the  percentage  of 
increase  was  usually  lower  in  the  larger  cities  than  in  the 
smaller  ones  and  higher  in  the  case  of  beef  that  is  cheap  at 
wholesale  than  of  high-priced  beef.  It  was  a  safe  inference 
that  the  poorer  people  paid  nearly  twice  the  gross  profit  that 
the  more  well-to-do  people  paid. 

The  fanner  and  milk  prices.  Another  investigation  into 
the  increase  of  prices  in  the  process  of  distribution  was  made 
in  the  last  week  of  June,  1910.  This  time  the  object  was  to 
discover  what  fraction  of  the  consumer 's  price  was  received  by 
the  farmer.  It  was  a  time  of  high  prices,  of  high  cost  of 


62  FARM  PRODUCTS  AND  PRICES 

living,  and  the  aim  was  to  ascertain  to  what  extent  the  farmer 
received  a  return  out  of  the  high  consumer's  cost  of  farm 
products. 

The  investigation  covered  seventy-eight  cities  scattered 
throughout  the  United  States,  and  the  information  was  con- 
tributed by  a  large  number  of  the  Department's  crop  corre- 
spondents and  by  some  of  its  special  agents  who  made  inquiries 
in  all  of  the  seventy-eight  cities.  The  cities  were  divided  into 
geographical  groups  for  the  purpose  of  computing  averages, 
and  these  were  combined  into  an  average  for  the  United  States, 
all  after  proper  weighting  according  to  importance. 

Milk  was  one  of  the  commodities  under  investigation — a 
food  product  indispensable  to  a  large  fraction  of  the  families 
of  the  nation,  and  now  a  costly  one  to  all  consumers.  While 
it  is  true  that  the  dairyman  is  receiving  considerably  more 
for  his  milk  than  he  did  before  the  present  era  of  high  prices, 
yet  it  was  discovered  in  this  investigation  that  throughout  the 
United  States  he  receives  a  scant  50  per  cent.,  or  one-half  of 
the  price  paid  by  the  consumer.  The  other  half  goes  to  the 
railway  company  for  carriage,  to  the  wholesale  milk  dealer,  if 
there  is  one  in  the  chain  of  distribution,  and  to  the  retailer  who 
delivers  at  the  consumer's  door. 

Freight  charges  for  carrying  milk  vary  according  to  dis- 
tance, but  their  average  may  be  regarded  as  approximately 
about  7  per  cent,  of  the  consumer's  price.  With  the  farmer 
receiving  about  50  per  cent,  of  that  price  and  the  railroads 
7  per  cent.,  the  remaining  43  per  cent,  of  the  consumer's  price 
is  received  mostly  by  the  retailer. 

The  milk  wagon  of  the  retailer  has  a  long  route.  It  stops 
at  a  house  or  two  in  one  city  block,  perhaps  passes  several 
blocks  without  stopping,  and  so  proceeds  to  serve  customers 
thinly  distributed  along  a  route  of  miles.  At  the  same  time 
the  milk  wagons  of  other  retailers  are  covering  various  por- 
tions of  the  same  route,  and  so  there  is  a  great  waste  of  effort 
and  of  expense  in  the  distribution. 

The  division  of  States  in  which  the  cost  of  distributing  milk 


FARM  PRODUCTS  AND  PRICES  53 

from  producer  to  consumer  is  the  most  is  the  North  Central 
group,  in  which  producers  receive  44  per  cent,  of  the  prices 
paid  by  the  consumer.  Next  in  order  follow  the  Western 
States  with  47  per  cent.,  the  North  Atlantic  States  with  53  per 
cent.,  the  South  Central  States  with  55  per  cent.,  and  the  South 
Atlantic  States  with  57  per  cent. 

The  average  price  paid  by  consumers  in  the  seventy-eight 
cities  is  almost  exactly  8  cents  per  quart.  In  the  North  At- 
lantic and  North  Central  States  the  average  is  7.5  cents;  in 
the  Western  States,  8.9  cents;  in  the  South  Central,  9.1  cents; 
and  in  the  South  Atlantic  States  9.3  cents.  These  prices  are 
for  the  last  week  in  June,  1910. 

Size  of  retail  unit,  and  of  farmer's  percentage  [page  22]. 
The  general  fact  was  that  the  producer's  percentage  of  the 
consumer 's  price  diminished  as  the  quantity  sold  at  retail  was 
smaller.  For  instance,  the  apple  grower  received  55.6  per 
cent,  of  the  consumer's  price  when  the  consumer  bought  by 
the  bushel  and  66  per  cent,  when  the  purchase  was  by  the 
barrel.  When  the  consumer  bought  corn  by  the  bushel,  the 
farmer  got  70.6  per  cent,  of  the  price,  but  when  the  purchase 
was  by  the  barrel  the  farmer  received  81  per  cent.  The 
strawberry  grower  received  48.9  per  cent,  of  the  consumer's 
price  in  purchases  by  the  quart  and  75.9  per  cent,  in  pur- 
chases by  the  crate.  A  still  better  illustration  is  found  in 
the  case  of  onions.  In  [purchases  made]  a  peck  at  a  time,  the 
farmer  received  27.8  per  cent,  of  the  retail  price ;  in  purchases 
of  a  barrel,  he  received  58.3  per  cent.;  and  in  purchases  by 
the  100  pounds,  he  received  69  per  cent.  So  in  the  case  of 
oranges,  when  the  purchase  was  by  the  dozen  the  grower  re- 
ceived 20.3  per  cent,  of  the  consumer's  price,  whereas  when 
the  purchase  was  by  the  box  the  grower  received  59.3  per  cent. 

Price  gains  from  consumer's  point  of  view  [page  24].  In 
the  consideration  of  this  subject  so  far,  the  aspect  has  been 
that  of  the  producer ;  the  farmer  thinks  of  the  price  that  the 
consumer  pays  for  farm  products  and  compares  with  them 
the  price  that  he  himself  receives.  While  the  farmer  is  look- 


54  FARM  PRODUCTS  AND  PRICES 

ing  forward  with  regard  to  the  prices  of  his  products,  the  con- 
sumer is  looking  backward,  and  so  regards  the  prices  that  he 
pays  as  increases  upon  what  the  farmer  gets.  This  aspect  of 
the  matter  may  now  be  worth  some  attention. 

It  is  established  by  the  investigation  of  this  Department 
made  last  June  that  the  milk  consumers  of  seventy-eight  cities 
paid  for  milk  an  increase  of  100.8  per  cent,  above  the  price 
received  by  dairymen ;  in  other  words,  the  farmer 's  price  was 
fully  doubled.  The  lowest  increase  among  the  geographic  di- 
visions was  75.5  per  cent,  in  the  South  Atlantic  States  and  the 
highest  was  111.9  per  cent,  in  the  Western  States. 

In  the  purchase  of  butter  the  consumer  pays  15.8  per  cent, 
above  the  factory  price  in  the  case  of  creamery  prints,  15.6 
above  in  the  case  of  factory  tub,  and  13.3  per  cent,  above  the 
factory  price  in  the  case  of  renovated  butter.  The  percent- 
ages of  increase  among  the  five  divisions  of  States  do  not 
vary  much  from  the  averages  for  the  United  States. 

Some  large  percentages  of  increase  of  prices  were  found  by 
the  Industrial  Commission — 135.3  per  cent,  for  cabbage 
bought  by  the  head;  100  per  cent,  for  melons  bought  by  the 
pound,  for  buttermilk  sold  by  the  quart,  and  for  oranges  sold 
by  the  crate;  260  per  cent,  for  onions  bought  by  the  peck; 
400.4  per  cent,  for  oranges  bought  by  the  dozen;  111.1  per 
cent,  for  strawberries  bought  by  the  quart;  and  200  per  cent, 
for  watermelons  sold  singly. 

There  were  many  cases  of  increase  of  consumer 's  price  over 
farmer's  price  amounting  to  75  per  cent,  and  over,  but  under 
100  per  cent.,  and  among  these  were  90.5  per  cent,  for  apples 
bought  by  the  barrel  and  80.6  per  cent,  for  apples  bought  by 
the  box ;  75  per  cent,  for  chickens  bought  by  the  head ;  83.4 
per  cent,  for  onions  bought  by  the  pound ;  80.5  per  cent,  for 
potatoes  bought  by  the  bushel;  88.8  per  cent,  for  poultry  in 
general  bought  by  the  pound ;  95.8  per  cent  for  strawberries 
bought  by  the  box ;  82.5  per  cent,  for  sweet  potatoes  bought  by 
the  bushel. 


FARM  PRODUCTS  AND  PRICES  55 

It  may  be  worth  while  to  extend  the  list  of  farm  products 
that  are  sold  to  consumers  at  a  large  increase  above  farm 
prices.  In  the  class  of  commodities  selling  for  an  increase  of 
price  amounting  to  50  per  cent,  and  over  but  under  75  per 
cent,  above  farm  prices,  may  be  mentioned  the  following  in- 
creases :  61.8  per  cent,  for  cabbage  bought  by  the  pound ;  66.7 
per  cent,  for  celery  bought  by  the  bunch,  turnips  and  parsnips 
bought  by  the  bunch,  and  green  peas  bought  by  the  quart; 
54.4  per  cent,  for  chickens  bought  by  the  pound ;  50  per  cent 
for  eggplants  bought  by  the  crate ;  68.4  per  cent,  for  onions 
bought  by  the  bushel;  68.7  per  cent,  for  oranges  bought  by 
the  box;  60  per  cent,  for  potatoes  bought  by  the  peck;  59.8 
per  cent,  for  turkeys  bought  by  the  pound. 

The  import  price  of  coffee  in  the  fiscal  year  1910,  which 
was  8  cents  a  pound,  after  the  increase  to  20  and  35  cents  per 
pound  to  the  retailer,  has  risen  in  price  to  the  consumer  from 
150  to  337.5  per  cent.  So  with  tea  of  the  same  fiscal  year ;  its 
import  price  of  16  cents  per  pound,  after  being  increased  to 
50  to  70  cents  per  pound,  cost  the  consumer  an  advance  of 
212.5  to  337.5  per  cent. 

Before  assigning  to  middlemen  the  various  increases  of 
prices,  it  is  proper  to  deduct  the  percentage  due  to  freight 
rates.  The  freight  charge  for  milk  received  in  New  York  is 
about  18  per  cent,  of  the  producer's  price,  and  in  Chicago 
about  14.7  per  cent.  Of  the  import  price  of  coffee,  the  ocean 
freight  charge  from  Kio  Janeiro  is  3.6  per  cent.  The  per- 
centages of  farm  price  for  which  freight  charges  stand  in  the 
United  States  may  be  estimated  at  approximately  0.9  of  1  per 
cent,  of  the  factory  price  for  butter ;  1.2  per  cent,  of  the  farm 
price  for  clover  seed;  1.6  per  cent,  for  cotton;  1.3  per  cent 
for  eggs;  13.6  per  cent,  for  apples;  4.8  per  cent,  for  beans; 
14.8  per  cent,  for  potatoes ;  and  5  per  cent,  for  sweet  potatoes. 
The  rates  for  oats,  rye,  barley,  and  wheat  are  nearly  the  same, 
ranging  from  6  per  cent,  for  oats  to  7.3  per  cent,  for  barley 
and  rye.  The  rate  for  corn  is  9.2  per  cent,  and  the  average 


56  FARM  PRODUCTS  AND  PRICES 

for  all  grain  is  7.7  per  cent.  For  hay  the  percentage  is  15.8 
per  cent. ;  for  cattle  and  hogs,  2.5  per  cent. ;  for  live  poultry, 
4.5  per  cent. ;  and  for  wool,  0.6  of  1  per  cent. 

The  farmer's  task.  From  the  details  that  have  been  pre- 
sented with  regard  to  the  increase  of  the  prices  of  farm 
products  between  farmer  and  consumer,  the  conclusion  is 
inevitable  that  the  consumer  has  no  well-grounded  complaint 
against  the  farmer  for  the  prices  that  he  pays.  The  farmer 
supplies  the  capital  for  production  and  takes  the  risk  of  his 
losses;  his  crops  are  at  the  mercy  of  drought,  and  flood,  and 
heat,  and  frost,  to  say  nothing  of  noxious  insects  and  blighting 
diseases.  He  supplies  hard,  exacting,  unremitting  labor.  A 
degree  and  range  of  information  and  intelligence  are  de- 
manded by  agriculture  which  are  hardly  equaled  in  any  other 
occupation.  Then  there  is  the  risk  of  over-production  and 
disastrously  low  prices.  From  beginning  to  end  the  farmer 
must  steer  dexterously  to  escape  perils  to  his  profits  and 
indeed  to  his  capital  on  every  hand.  At  last  the  products  are 
started  on  their  way  to  the  consumer.  The  railroad,  gener- 
ally speaking,  adds  a  percentage  of  increase  to  the  farmer's 
prices  that  is  not  large.  After  delivery  by  the  railroad  the 
products  are  stored  a  short  time,  are  measured  into  the  various 
retail  quantities,  more  or  less  small,  and  the  dealers  are  rid  of 
them  as  soon  as  possible.  The  dealers  have  risks  that  are 
practically  small,  except  credit  sales  and  such  risks  as  grow 
out  of  their  trying  to  do  an  amount  of  business  which  is  -small 
as  compared  with  their  number. 

The  problem  for  consumers.  After  consideration  of  the 
elements  of  the  matter,  it  is  plain  that  the  farmer  is  not 
getting  an  exorbitant  price  for  his  products,  and  that  the  cost 
of  distribution  from  the  time  of  delivery  at  destination  by 
the  railroad  to  delivery  to  the  consumer  is  the  feature  of  the 
problem  of  high  prices  which  must  present  itself  to  the  con- 
sumer for  treatment. 

Why  do  not  consumers  buy  directly  from  the  farmers? 
A  distribution  of  farm  products  in  this  simple  way  has  already 


FARM  PRODUCTS  AND  PRICES 


57 


begun  in  England,  where  cooperative  organizations  of  farmers 
are  selling  by  direct  consignment  to  cooperative  organizations 
of  consumers  in  cities. 

Farmers'  cooperative-selling  associations  are  numerous  in 
this  country,  but  cooperative-buying  associations  among  the 
people  of  cities  and  towns  are  few.  Aside  from  buying  asso- 
ciations maintained  by  the  farmers,  hardly  any  exist  in  this 
country.  It  is  apparent,  therefore,  that  the  consumer  has 
much  to  do  to  work  out  his  own  salvation  with  regard  to  the 
prices  that  he  pays.  Potatoes  were  selling  last  spring  in  some 
places  where  there  had  been  an  overproduction  for  20  cents 
and  in  some  places  for  even  9  cents  per  bushel  at  the  farm, 
while  at  the  same  time  city  consumers  in  the  East  were  paying 
50  to  75  cents  per  bushel,  although  there  was  nothing  to  pre- 
vent them  from  combining  to  buy  a  carload  or  more  potatoes 
directly  from  the  grower  and  for  delivery  directly  to  them- 
selves. 


AN  UNSALABLE  FOOD-SURPLUS 

[THE  growth  of  city  markets  where  all  goods  are  handled  by  middle- 
men, and  the  buyer  at  retail  is  unacquainted  with  the  conditions  of 
production  and  little  able  to  judge  of  quality,  often  brings  about  odd 
situations  and  what  appear  to  be  illogical  prices.  Many  a  daily  paper 
will  furnish  an  example;  here  is  one  from  the  New  York  Times  of  June 
1,  1912.  Such  cases  are  popularly  explained  as  due  to  "monopoly" 
trying  to  keep  up  prices  by  destroying  the  surplus.  Cases  of  monopoly 
action  similar  to  this  occur,  but  are  the  conditions  in  this  case  "mo- 
nopolistic"?] 

While  the  cost  of  living  is  mounting  steadily  and  beef  is 
bringing  civil  war  prices,  tons  of  fresh  food  fish  are  being 
shipped  daily  from  Fulton  Market  to  Barren  Island  to  be 
made  into  fertilizer.  For  the  last  three  weeks  a  steamer, 
loaded  with  newly  caught  porgies,  sea  bass,  butterfish,  weak- 
fish,  and  other  varieties,  has  made  one  or  more  trips  a  day  from 
the  offal  dock.  On  some  days  more  than  200  barrels  of  fish  in 
good  condition  have  been  destroyed — enough  to  supply  40,000 
meals.  On  these  days  more  fish  have  gone  over  to  Barren 
Island  than  have  been  sold  to  the  retail  trade  in  New  York  City. 

Wholesale  dealers  at  the  Fulton  Market  say  they  have  to 
destroy  the  fish  because  in  this  city  the  people  are  afraid  to 
buy  it  at  low  prices.  Exceptionally  large  catches  are  reported 
all  the  way  from  Cape  Henry,  Va.,  to  Seabright,  N.  J.,  a  300- 
mile  stretch  of  coast.  One  Fulton  Market  dealer  said  yester- 
day that  the  supply  of  fish  this  year  is  75  per  cent,  larger  than 
the  average  season.  Although  nearly  all  of  this  fish  is  han- 
dled in  New  York  Harbor,  the  consumer  in  New  York  City  is 
benefited  but  little.  One  dealer  estimated  yesterday  that  not 
more  than  2  per  cent,  of  the  fish  received  here  is  eaten  in 
New  York  Cityi  Other  dealers  placed  the  percentage  a  good 

58 


AN  UNSALABLE  FOOD-SURPLUS  69 

deal  higher,  but  they  agreed  that,  while  fish  is  shipped  from 
New  York  as  far  West  as  Chicago  and  St.  Louis,  and  sold 
there  cheaper  and  in  greater  quantities  than  usual,  high  prices 
prevail  in  this  city,  and  the  quantity  sold  here  is  about  the 
same  as  in  ordinary  seasons. 

One  wholesale  fish  dealer  yesterday  gave  an  explanation  of 
this. 

"The  chief  reason  that  good  eating  fish  has  to  be  destroyed," 
he  said,  "is  that  dealers  who  place  it  on  sale  at  low  prices  can- 
not sell  it.  The  average  woman  doesn't  know  how  to  judge 
the  condition  of  a  fish,  and  her  only  test  of  its  quality  is  the 
price.  If  it  is  lower  than  she  is  in  the  habit  of  paying  she  is 
afraid  the  fish  is  stale.  She  won't  buy  unless  the  dealer 
charges  two  or  three  times  what  would  be  a  fair  price.  Her 
impression  often  is  that,  if  the  fish  were  really  fit  to  eat,  it 
would  have  been  put  into  cold  storage,  instead  of  being  sold 
cheap.  This  is  a  mistake,  for  cold  storage  is  a  costly  process 
and  we  do  not  use  it  any  more  than  is  necessary.  We  can 
much  better  afford  to  sell  fish  outright  at  a  lower  price.  At 
present  we  are  paying  25  cents  a  barrel  to  have  good  fresh  fish 
destroyed,  but  we  lose  less  that  way  than  we  would  by  putting 
it  into  cold  storage. 

"Take  bluefish,  for  example.  It  is  considered  a  luxury  and 
is  much  in  request  at  present.  For  several  years  it  had  almost 
disappeared  from  these  waters.  Last  year  it  returned,  and 
this  season  it  is  being  caught  in  unprecedented  quantities. 
We  sell  it  from  4  to  8  cents  a  pound.  The  retailer  sells  it  all 
the  way  from  10  to  30  cents  a  pound.  Those  who  sell  it  so  low 
as  10  cents  are  the  peddlers  and  small  shopkeepers.  While 
their  fish  is  the  same  in  every  respect  as  the  other,  it  is  never- 
theless under  suspicion  because  of  its  cheapness.  Very  little 
of  it  goes  at  10  cents  a  pound. 

"Another  factor  is  the  belief  of  many  people  in  this  city 
that  fresh  fish  can  be  obtained  only  on  Friday.  They  think 
what  is  on  the  market  any  other  day  is  stale  or  left  over.  As 
fish  day  only  comes  once  a  week  the  retailer  has  only  one  good 


60  AN  UNSALABLE  FOOD-SURPLUS 

selling  day  in  the  week,  and  he  has  to  make  a  larger  profit,  and 
he  sells  at  an  advance  of  from  300  to  500  per  cent. 

1  'We  would  rather  sell  at  any  figure  than  have  it  wasted. 
It  costs  something  like  2  cents  a  pound  to  catch  the  fish  we 
send  over  to  Barren  Island  and  it  costs  25  cents  a  barrel  to  get 
rid  of  it  in  this  manner.  It  would  be  cheaper  to  give  it  away. 
We  cannot  put  it  into  cold  storage  because  that  would  mean 
a  greater  loss.  It  costs  three-quarters  of  a  cent  a  pound  to 
freeze  fish  and  a  quarter  of  a  cent  a  pound  for  every  month  it 
is  in  cold  storage.  And  only  a  limited  supply  of  cold  storage 
fish  can  be  disposed  of. 

' '  Weakfish  sells  at  wholesale  from  2  to  5  cents  a  pound ;  at 
retail  from  8  to  20  cents.  Butterfish  sells  at  wholesale  from 
li/4  cents  a  pound  to  4  cents ;  at  retail  from  8  to  20  cents.  The 
difference  runs  about  the  same  between  the  wholesale  and  re- 
tail prices  of  other  varieties.  The  country  peddler  buys  fish  at 
5  cents  a  pound  and  sells  it  at  10  cents,  while  in  this  city  the 
retailer,  who  buys  at  the  same  price,  less  the  freight,  sells  at 
20,  25,  and  30  cents  a  pound.  They  prefer,  even  in  excep- 
tional seasons  like  this,  to  buy  in  small  quantities  and  sell  at 
high  prices,  and  this  policy  is  favored  by  the  attitude  of  the 
consumers  who  suspect  anything  on  sale  at  a  lower  price  than 
they  are  accustomed  to  pay.  This  season  a  fish  peddler  could 
go  about  with  the  very  best  of  fish  and  make  a  good  profit  offer- 
ing it  at  25  cents  a  panful,  but,  if  he  did,  the  consumers  would 
be  so  alarmed  that  they  would  demand  an  investigation  by  the 
health  authorities. 

*  *  The  public  is  capricious  in  another  respect.  It  has  a  taste 
for  winter  fish  in  summer  and  for  summer  fish  in  winter. 
When  fish  is  in  season,  at  its  very  best  in  condition  and  flavor 
and  at  its  lowest  price,  the  demand  usually  shifts  for  some 
other  variety  that  probably  is  costlier  and  poorer  in  quality. ' ' 


RENTALS  OF  URBAN  REAL  ESTATE 

[THE  Principles  of  City  Land  Values,  by  Richard  M.  Hurd,  presi- 
dent the  Lawyers'  Mortgage  Insurance  Co.,  New  York,  1903,  contains 
numerous  illustrations,  maps  of  cities,  diagrams,  and  comparisons  of 
values  based  on  wide  and  painstaking  study.  The  extracts  which  are 
printed  in  this  book  with  the  permission  of  the  author,  are  from  the 
latter  part  of  book,  and  give  the  general  conclusions  (page  122).] 

Basis  of  gross  business  rents.  While  gross  rents  are  fixed 
by  competition,  the  question  arises,  How  do  bidders  determine 
what  they  can  pay  ?  The  basis  differs  radically  between  busi- 
ness property  which  earns  income  for  the  occupant  as  well  as 
the  owner,  and  residence  property  which  for  the  occupant 
consumes  income 1  only. 

The  gross  rents  of  business  property  are  gaged  from  the 
economic  standpoint,  these  being  in  the  long  run  the  normal 
proportion  of  what  property  can  earn  for  the  tenant.  The 
proportion  of  gross  receipts  which  a  shopkeeper  pays  as  rent 
varies  according  to  his  ability  as  a  tradesman,  the  character 
and  class  of  his  business,  and  the  location,  a  fair  average 
being  from  20  to  40  per  cent.  The  better  the  location  for 
retail  trade,  the  higher  the  proportion  of  receipts  paid  for  the 
rent.  For  retail  trade  the  location  and  the  consequent  ad- 
vertising perform  the  vital  function  of  selling  the  goods,  and 
the  shopkeeper  can  largely  devote  his  energies  to  selecting 
what  the  people  want.  Similarly,  though  in  a  less  marked 
way,  prominent  office  buildings  help  to  advertise  the  business 
of  their  tenants.  On  the  other  hand,  mercantile  property  not 

i  [Pecuniary  income  is  here  meant.  Residence  property  occupied  by  a 
tenant  earns  pecuniary  income  for  the  owner,  and  yields  to  the  tenant  an 
income  of  uses  which  his  money  buys. — ED.] 

61 


62  RENTALS  OF  URBAN  REAL  ESTATE 

on  traffic  streets,  wholesalers,  etc.,  pay  but  a  small  proportion 
of  their  receipts  as  rent,  the  saving,  however,  going  to  the  hire 
of  drummers  to  sell  goods. 

The  gross  rents  of  residences.  The  gross  rents  of  resi- 
dences represent  the  proportion  of  income  which  various 
classes  can  afford  to  pay  for  house  rent.  While  the  return 
for  such  expenditure  is  chiefly  the  satisfaction  of  suitable  sur- 
roundings, social  ambition  influences  all  classes  to  live  in  the 
best  neighborhoods  within  their  reach.  The  proportion  of 
[house]  rent  to  income  varies  from  15  or  20  per  cent,  among 
the  wealthy,  up  to  25  or  35  per  cent,  among  tenement  dwellers. 

Operating  expenses.  Taking  as  gross  rents  the  amounts 
actually  received  and  not  the  full  rental  value,  from  which  an 
allowance  for  vacancies  must  be  made,  we  may  note  first  the 
great  difference  in  the  proportion  of  operating  expenses  ac- 
cording to  the  class  of  property,  this  varying  from  10  per  cent, 
for  one-  or  two-story  brick  store  buildings,  up  to  50  per  cent, 
for  office  buildings  or  apartment  houses.  Explaining  this 
difference  is  the  fact  that  in  office  buildings  and  apart- 
ment houses,  from  20  to  25  per  cent,  of  the  rent  repre- 
sents the  payment  for  services,  such  as  light,  heat,  elevator, 
janitors,  cleaning,  etc.  If  from  gross  rentals  all  service 
charges  are  deducted,  the  other  charges,  taxes,  insurance,  re- 
pairs and  rent  collecting,  approximate  in  percentage  quite 
closely  in  all  classes  of  property.  - 

Average  taxes.  Average  taxes  vary  somewhat  in  different 
cities.  Taxes  on  individual  properties  in  the  same  city  vary 
more  sharply  owing  to  irregular  assessing  by  tax  officials. 
Figuring  the  average  of  a  large  number  of  American  cities, 
taxes  range  from  1*4  to  1%  per  cent,  of  actual  value,  the 
chief  exceptions  being  in  Washington,  where  taxes  amount 
to  9io  per  cent,  (the  United  States  Government  paying  half  the 
taxes),  and  in  San  Francisco,  where  taxes  amount  to  ?4o  per 
cent,  (the  city  having  no  bonded  debt).  The  chief  errors  of 
assessors  come  from  their  overestimate  of  external  appearances 


RENTALS  OF  URBAN  REAL  ESTATE  63 

and  from  the  habit  of  following  former  assessment  rolls,  so 
that  quke  uniformly  property  which  has  been  valuable  but 
which  is  deteriorating  is  assessed  higher  than  property  in  the 
line  of  growth  and  yielding  larger  rents. 

The  cost  of  insurance.  The  cost  of  insurance  is  usually  so 
slight  that  it  can  be  disregarded  in  making  up  the  budget  of 
annual  expenses.  Rates  range  from  15  cents  to  30  cents  per 
$100  per  annum  for  first-class  risks  in  the  larger  cities,  50 
cents  to  75  cents  per  $100  on  first-class  risks  in  the  smaller 
cities,  $1.00  per  $100  on  stores  and  office  buildings  in  the 
smaller  cities,  and  so  on  up. 

Repairs.  Leases  vary  in  their  provisions  as  to  payment  for 
repairs  by  landlord  and  tenant,  but  if  paid  by  the  tenant  the 
jient  is  proportionately  reduced.  Average  repairs  vary  from 
one-half  of  1  per  cent,  of  the  value  of  the  building  per  annum 
in  the  case  of  the  highest  type  of  fireproof  buildings,  1  per 
cent,  for  ordinary  mercantile  buildings,  2  per  cent,  for  older 
property  or  that  of  cheaper  construction,  3  to  4  per  cent,  for 
old  tenements,  and  so  on  up  in  proportion  to  the  age,  character 
of  construction,  and  lack  of  care  of  the  buildings. 

Cost  of  rent  collecting.  The  cost  of  rent  collecting  aver- 
ages from  21/£  to  3  per  cent,  of  the  rent  receipts  in  the  larger 
cities,  according  to  the  class  of  property,  and  about  5  per  cent, 
in  the  smaller  cities,  according  to  the  class  of  property. 
Owners  who  are  competent  to  manage  real  estate  may  save 
agents '  commissions  by  so  doing,  but  instances  are  not  un- 
common, especially  as  to  large  business  property,  where  owners 
managing  their  own  property  lose  their  time  and  from  20  to 
30  per  cent,  of  the  income  which  an  expert  rental  agent  could 
have  obtained. 

Operating  expenses  and  net  rents.  An  estimated  scale  of 
proportion  of  total  operating  expenses  and  net  rents  would 
be  as  follows,  the  cost  of  services  where  rendered,  as  in  office 
buildings,  apartments  and  some  tenements,  being  included  in 
expenses : 


64  RENTALS  OF  URBAN  REAL  ESTATE 

Expenses,  Net  rents, 

per  cent.  per  cent. 

Low  retail  or  wholesale  buildings 10-25  90-75 

Residences  20-30  80-70 

Non-elevator  office  buildings 25-35  75-65 

Tenements,  non-elevator  and  elevator. . .   25-45  75-55 

Elevator  apartments 40-55  60-45 

Fireproof  office  buildings 40-55  60-45 

Expenses  and  net  income.  It  is  clear  that  the  lower  the 
cost  of  the  building  in  proportion  to  the  value  of  the  land,  the 
nearer  the  income  approaches  to  pure  ground  rent,  against 
which  the  sole  charge  is  taxes.  On  the  other  hand,  the  more 
expensive  the  building  the  higher  the  maintenance  cost,  owing 
both  to  the  greater  number  of  services  rendered  and  to  the 
higher  standard  of  accommodation.  Since  the  operating  ex- 
penses of  a  building,  whether  fully  or  only  partly  occupied, 
vary  but  slightly,  the  larger  the  proportion  of  expenses  to 
gross  rentals  the  more  marked  will  be  the  rise  or  fall  of  net 
rentals  as  gross  rentals  fluctuate.  Ordinarily,  expensive  office 
buildings  are  properly  located,  the  chief  errors  being  in  the 
erection  of  expensive  buildings  in  small  cities,  or  in  poor  loca- 
tions in  larger  cities.  When  hard  times  cause  a  sharp  drop 
in  rents  in  the  smaller  cities,  instances  have  been  known  of  the 
upper  floors  of  such  buildings  not  earning  sufficient  rent  to  pay 
for  the  mere  services  rendered,  so  that  it  would  pay  for  owners 
to  close  the  buildings  above  the  ground  floor,  even  though  the 
ground  floor  stores  are  in  active  demand.  The  danger  to 
owners  of  heavy  fixed  charges  is  shown  in  the  following  table 
[somewhat  abbreviated] : 

With 

percentage 
of  expenses  If  gross  rents  rise  or  fall 

to  gross          20  per  cent.      40  per  cent.      60  per  cent. 

income.  then  net  rents  rise  or  fall 

10  per  cent.      22  per  cent.      44  per  cent.       66  per  cent. 
20     "       "          25  "          50     "       "  75     "       " 


30  "  "  29 

40  "  "  33 

50  "  "  40 

60  "  "  50 


"          56  "  "  85 

"          66  "  "  100  " 

80  "  "  120  " 

lf         100  "  "  150  " 


RENTALS  OF  URBAN  REAL  ESTATE  65 

Allowance  for  income  from  building.  The  next  charge 
against  gross  rents  is  for  interest  on  capital  invested  in  the 
building,  this  being  figured  at  the  same  rate  as  the  capitaliza- 
tion of  the  ground  rent,  after  an  allowance  for  depreciation 
has  been  made. 

[This  charge  of  interest  on  capital  invested  can  be  looked  upon 
only  as  estimate  made  at  the  moment  of  investment,  in  the  belief  that 
the  form  and  style  of  building  is  being  suitably  chosen.  After  the 
building  is  done,  the  amount  properly  to  be  charged  against  gross 
rents  on  account  of  the  building  would  have  to  be  judged  from  other 
conditions  than  the  amount  invested,  and  the  investment  may  be  deemed 
to  be  either  partly  or  wholly  lost.  This  is  strikingly  brought  out  by 
the  pictures  and  the  accompanying  explanation  which  appear  in  the 
text  at  this  point. — ED.].  f] 

Net  ground  rent.  The  final  residuum  constitutes  the  .  s  . 
ground  rent  which  represents  the  competitive  premium  paid 
for  location.  Where  there  is  no  residuum  of  ground  rent  in 
city  land  it  does  not  follow  that  the  land  has  no  value,  but 
usually  that  the  improvements  are  not  suitable,  so  that  the 
value  must  be  estimated  under  a  different  utilization.  If  the 
improvement  is  a  suitable  one,  absence  of  ground  rent  may  be 
due  to  temporary  drop  in  rentals  or  bad  management,  all  city; 
land  normally  yielding  some  ground  rent. 

Ground  rents  and  various  utilities  [page  145].  In  review- 
ing the  evolution  of  value x  in  urban  land,  the  first  step  is  to 
conceive  of  the  naked  site  apart  from  the  buildings,  having 
only  the  qualities  of  location  and  extension  and  without  value 
until  there  is  competition  for  land.  .  .  .  Exchange  value  con- 
sists of  [the  capitalization  of  the  ground  rent]  modified  by  fu- 
ture prospects.  Ground  rent  is  the  residuum  after  deducting 
from  gross  rents  all  operating  charges,  taxes,  insurance,  re- 
pairs, rent  collecting,  and  interest  on  the  capital  invested  in 
the  building.  Ground  rent  is  a  premium  paid  solely  for  loca- 

i  [In  the  following  paragraphs  the  statements  made  regarding  "value" 
are  almost  all  true  also  of  rental-value  and  of  usance-value,  although  they 
are  made  in  the  text  in  relation  to  capital  value. — ED.] 


66  RENTALS  OF  URBAN  REAL  ESTATE 

tion  and  all  rents  are  based  on  utility.  Utilities  in  cities  tend 
constantly  toward  specialization  and  complexity,  business  be- 
ing broadly  divided  into  distribution,  administration  and  pro- 
duction, and  then  indefinitely  subdivided;  and  residences  be- 
ing divided  into  as  many  classes  as  there  are  social  grades. 
In  so  far  as  land  is  suitable  for  a  single  purpose  only,  its 
value  is  proportionate  to  the  degree  to  which  it  serves  that 
purpose  and  the  amount  which  such  utility  can  afford  to  pay 
for  it.  "When  land  is  suitable  for  a  number  of  purposes,  one 
utility  competes  against  another  and  the  land  goes  to  the 
highest  utilization.  .  .  . 

Different  uses  of  land.  The  factors  distributing  values  over 
the  city's  area  by  attraction  or  repulsing  various  utilities  are, 
in  the  case  of  residences,  absence  of  nuisances,  good  approach, 
favorable  transportation  facilities,  moderate  elevation  and 
parks ;  in  the  case  of  retail  shops,  passing  street  traffic,  with  a 
tendency  towards  proximity  to  their  customers'  residences;  in 
the  case  of  retail  wholesalers  and  light  manufacturing,  prox- 
imity to  the  retail  stores  which  are  their  customers ;  in  the  case 
of  heavy  wholesaling  or  manufacturing,  proximity  to  transpor- 
tation ;  and  in  the  case  of  public  or  semi-public  buildings,  for 
historical  reasons,  proximity  to  the  old  business  center;  the 
land  that  is  finally  left  being  filled  in  with  mingled  cheap 
utilities,  parasites  of  the  stronger  utilities,  which  give  a  low 
earning  power  to  land  otherwise  valueless. 

Proximity  and  accessibility.  Value  by  proximity  responds 
to  central  growth,  diminishing  in  proportion  to  distance  from 
various  centers,  while  value  from  accessibility  responds  to 
axial  growth,  diminishing  in  proportion  to  absence  of  trans- 
portation facilities.  Change  occurs  not  only  at  the  circum- 
ference but  throughout  the  whole  area  of  a  city,  outward 
growth  being  due  both  to  pressure  from  the  center  and  to 
aggregation  at  the  edges.  All  buildings  within  a  city  react 
upon  each  other,  superior  and  inferior  utilities  displacing 
each  other  in  turn.  Whatever  the  size  or  shape  of  a  city; 


RENTALS  OF  URBAN  REAL  ESTATE  67 

and  however  great  the  complexity  of  its  utilities,  the  order 
of  dependence  of  one  upon  another  is  based  on  simple  princi- 
ples, all  residences  seeking  attractive  surroundings  and  all 
business  seeking  its  customers. 


HOUSING  AND  RENTS  IN  AMERICAN  TOWNS 

[THE  British  Board  of  Trade  Report  on  working-class  rents,  etc., 
in  the  principal  industrial  towns  of  the  United  States  (made  in 
April,  1911),  presents  a  comparison  by  means  of  index  numbers,  of 
average  rents  for  working-class  houses  and  apartments  in  the  various 
towns  investigated.  The  dwellings  are  classed  merely  by  the  number 
of  rooms  (the  mean  between  the  lowest  and  highest  rates  that  pre- 
dominate being  determined)  ;  and  thus  the  comparison  between  large 
and  small  cities  leaves  out  of  account  differences  in  yards  and  gar- 
dens, in  height  of  building,  etc.  A  four-room  apartment  on  the  fifth 
floor,  without  a  foot  of  yard  enters  into  the  estimate  just  as  does  a 
separate  one-story,  four-room  cottage  with  a  yard.  The  difficulties  are 
recognized  in  the  report,  where  they  are  deemed  unavoidable.  The 
method  of  computing  the  averages,  by  a  somewhat  elaborate  process, 
having  been  explained,  the  report  says  (p.  xxv.  ff.) :] 

In  the  following  table  the  index  numbers  so  calculated  are 
given,  showing  the  relative  level  of  rents  in  each  of  the  towns 
investigated  as  compared  with  New  York,  the  predominant 
rents  in  that  town  being  taken  as  the  base  (=  100) : 

BENTS   INDEX   NUMBERS   IN  DESCENDING   OBDEB. 
NEW  YOBK  =  100. 

Index  Index 

Town.                   number.  Town.                   number. 

Borough  of  Manhattan    (New  New  Orleans 72 

York)   109      Savannah    71 

St.  Louis 101      Louisville    71 

NEW    YORK 100      Chicago    70 

Pittsburg 94      Milwaukee 66 

Memphis    93      Lawrence 64 

Cincinnati 93      Cleveland 64 

Borough    of    Brooklyn    (New  Paterson    62 

York)     88      Providence    59 

Brockton   83      Augusta    58 

Boston    82      Detroit 57 

Birmingham   81      Fall  River 55 

Philadelphia  79      Baltimore    54 

Newark    78      Lowell    52 

Minneapolis — St.    Paul 77      Muncie 44 

Atlanta   76 

68 


RENTS  IN  AMERICAN  TOWNS  69 

It  will  be  observed  from  the  above  table  that,  while  the  index 
number  for  St.  Louis  is  slightly  higher  than  that  for  New 
York  as  a  whole,  the  figure  for  the  great  borough  of  Manhat- 
tan, still  often  regarded  as  New  York  proper  and  still  the 
center  of  the  most  congested  areas  in  the  world,  is  109,  while 
that  for  the  borough  of  Brooklyn  is  88.  Apart  from  St.  Louis, 
Pittsburg  (a  rapidly  growing  industrial  center),  Memphis  (a 
city  hardly  less  Western  than  Southern  in  temper  and  stage  of 
development),  and  Cincinnati  (still  somewhat  hampered  in 
the  development  of  its  housing  accommodation  by  physical 
conditions),  also  stand  out  as  towns  in  which  the  range  of 
rentals  is  relatively  high.  Brockton,  the  highest  among  the 
New  England  towns,  is  the  center  of  a  staple  industry  in 
which  wages  and  the  standard  of  comfort  are  not  only  gener- 
ally high  but  more  approximately  uniform  than  in  most  towns. 
Baltimore  and  Detroit,  with  index  numbers  respectively  46 
and  43  per  cent.,  lower  than  that  for  New  York,  are  the  most 
important  towns  included  among  the  more  cheaply  rented,  al- 
though the  position  of  Cleveland,  Milwaukee  and  Chicago  is 
not  far  removed,  with  index  numbers  of  64,  66  and  70  re- 
spectively. Between  New  York  and  Detroit,  which  ranks  as 
one  of  the  "home  cities"  of  America,  Philadelphia,  which  is 
best  known  by  this  title,  occupies  a  middle  position  with  an 
index  number  of  79. 

Although  wide  differences  are  thus  shown  in  rents  as  be- 
tween town  and  town,  the  local  variations,  apart  from  the 
unique  position  occupied  by  New  York  itself,  are  much  less 
marked  when  these  are  grouped  geographically,  as  the  fol- 
lowing table  shows : 

BENTS  INDEX  NUMBERS  FOB  GEOGBAPHICAL  GBOUPS. 
NEW   YOBK  =  100. 

Number 

of  towns  Mean  rents. 

Geographical  group.                    in  group.  Index  numbers. 

NEW   YORK 1  100 

New  England  towns 6  66 

Other  Eastern  towns 4  68 

Central   towns 6  71 

Middle  West  towns 4  79 

Southern  towns..               6  75 


70  RENTS  IN  AMERICAN  TOWNS 

The  lowest  index  number  is  that  for  the  New  England  group, 
66,  a  figure  to  which  that  for  the  other  Eastern  towns  closely 
approximates.  The  six  Central  towns  include  Muncie,  a  small 
town  in  which  industrial  conditions,  largely  owing  to  the  clos- 
ing of  steel-rolling  mills,  had  been  recently  depressed  and  in 
which  rents  in  1909  were  exceptionally  low  in  consequence. 
Omitting  Muncie,  the  index  number  of  the  Central  group  is 
76,  or  nearly  as  high  as  that  for  the  Middle  West,  the  towns  in 
which,  with  a  mean  index  number  of  79,  stand  out  as  the  most 
highly  rented  geographical  group  of  all.  The  Southern  group 
includes  Memphis,  a  town  that  is  largely  dominated  by  the 
Western  spirit  and  where  rents  are  high.  It  differs  in  tone 
and  character  from  the  other  five  towns  in  this  group  and, 
excluding  Memphis,  the  mean  index  number  for  dwellings  in 
the  occupation  of  whites  for  the  remaining  five  Southern  towns 
is  72,  a  figure  which  still  seems  a  relatively  high  one  for  a 
part  of  the  country  in  which  the  temperature  is  never  low  and 
in  which  shelter  is  perhaps  equally  important  as  a  protec- 
tion from  heat  as  from  cold.  In  these  towns,  however,  homes 
are  generally  self-contained  and  sites  relatively  liberal,  and 
there  is  practically  no  congestion,  while  the  towns  themselves 
are  largely  representative  of  the  new  industrial  South. 

In  spite  of  the  complex  and  often  local  causes  that  help  to 
determine  rent  levels,  when  the  towns  are  grouped  on  the  basis 
of  population  a  general  conformity  with  the  rule  that  the  rents 
of  large  towns  tend  to  be  higher  than  those  of  smaller  ones  is 
shown,  and  in  this  respect  the  position  is  illustrated  in  the 
following  table: 

BENTS  INDEX  NUMBERS  FOB  POPULATION  QBOUPS. 
NEW   YOBK  =  100. 

Number 

Population  group.                          of  towns  Mean  rents. 

in  group.  Index  number. 

NEW  YORK   (population  4,766,883) 1  100 

Other  towns  with  more  than  500,000  inhabitants    8  78 

Towns  with  from  250,000  to  500,000  inhabitants    5  73 

Towns  with  from  100,000  to  250,000  inhabitants    8  69 

Towns  with  under  100,000  inhabitants 5  64 


RENTS  IN  AMERICAN  TOWNS  71 

.  .  .  The  Census  of  1900  gives  particulars  of  the  number  of 
dwelling-houses  owned  by  their  occupiers  either  free  or  encum- 
bered, and  the  combined  percentages  ranged  at  that  date,  so 
far  as  the  towns  covered  by  the  inquiries  are  concerned,  from 
a  maximum  of  39.1  in  Detroit  to  a  minimum  of  12.1  in  New 
iYork.  In  six  cases  the  percentages  exceeded  30,  namely  in 
Detroit,  as  mentioned,  with  39.1  per  cent.,  16.6  per  cent, 
being  encumbered;  Cleveland  with  37.4  per  cent.,  16.1  per 
cent,  being  encumbered;  Milwaukee  with  35.9  per  cent.,  19.4 
per  cent,  being  encumbered;  Duluth  with  35.7  per  cent., 
11.5  per  cent,  being  encumbered;  Brockton  with  33.9  per 
cent.,  23.1  per  cent,  being  encumbered ;  and  Muncie  with  32.7 
per  cent.,  14.8  per  cent,  being  encumbered.  In  fourteen  of 
the  towns  investigated  the  numbers  of  dwelling-houses  owned 
by  their  occupiers,  both  free  and  encumbered,  exceeded  20 
per  cent,  and  were  under  30  per  cent. ;  in  eight  towns,  includ- 
ing five  of  the  six  Southern  towns  with  large  proportions  of 
their  population  colored,  the  combined  percentage  fell  below 
20;  the  remaining  three  towns  being  Boston  with  18.9  per 
cent.,  Fall  River  with  18.0  per  cent.,  and  New  York,  as  men- 
tioned, with  12.1  per  cent.  It  must  be  observed  that  the  above 
percentages  refer  to  dwelling-houses  of  every  kind  irrespective 
of  the  class  of  occupier,  and  that  it  is  impossible,  therefore,  to 
state  to  what  extent  the  owners  belonged  to  the  wage-earning 
class.  The  chief  methods  by  which  purchases  are  arranged 
are  either  through  the  medium  of  building  and  loan  associa- 
tions or  through  the  special  facilities  offered  by  builders  and 
real  estate  companies.  Building  and  loan  associations  are 
widely  scattered  throughout  the  country,  and  are  especially 
numerous  in  Philadelphia,  but  the  competing  activities  of 
builders  and  companies,  with  many  variations  on  the  general 
plan  of  a  percentage  payment  of  the  price  in  cash  with  first 
and  sometimes  second  mortgages  and  sometimes  on  a  simple 
plan  of  payment  by  monthly  instalments,  are  still  more  gen- 
eral. As  a  rule  ownership  includes  the  freehold,  but  in  Balti- 
more the  buildings  are  frequently  held  alone,  the  ground  rent 


,72  BENTS  IN  AMERICAN  TOWNS 

being  a  separate  and  permanent  charge.    To  a  less  extent  a 
similar  practice  prevails  in  Fall  Kiver. 

As  regards  foreigners,  among  those  who  appear  to  be  the 
most  active  buyers  of  real  estate  are  the  Germans,  Italians,  and 
Jews,  but  also  the  Poles  in  towns  such  as  Detroit  and  Mil- 
waukee, the  Bohemians  in  Chicago,  and  the  Scandinavians  in 
Duluth  and  Minneapolis-St.  Paul.  The  great  effort  made  to 
become  house-owners  is  frequently  mentioned  in  the  town  re- 
ports, a  special  impulse  to  incur  a  present  sacrifice  being 
doubtless  often  found  in  the  confidence  with  which  a  future 
rise  in  the  value  of  land  is  anticipated.  When  a  customary 
local  type  of  building  is  for  the  accommodation  of  more  than 
a  single  family,  the  dwelling  is  still  often  purchased  by  small 
owners  and  one  or  more  tenements,  as  the  case  may  be,  are  then 
sublet.  This  would  be  the  usual  and,  indeed,  under  local  con- 
ditions, the  almost  necessary  practice  in  such  towns  as  New 
York  and  even  Boston,  but  subletting  part  of  what  is  designed 
for  the  accommodation  of  a  single  family,  or  the  introduction 
of  a  disproportionate  number  of  lodgers  and  boarders,  is  also 
apt  to  follow  on  purchase,  as  among  the  Poles  in  Milwaukee. 
In  general  it  may  be  observed  that  the  practice  of  purchasing 
dwellings  by  wage-earners  in  the  United  States  has  assumed 
large  proportions ;  that  it  is  regarded  as  a  satisfactory  feature 
of  the  urban  situation ;  and  that,  in  spite  of  the  large  transient 
element  of  the  population,  it  is  apparently  increasing. 

[In  the  comments  made  on  conditions  found,  some  interesting  prob- 
lems of  house  rents  are  suggested,  page  xxi:] 

The  normal  difficulties  of  standardizing  dwelling  accommo- 
dation in  the  United  States  are  increased  by  the  special  im- 
portance that  attaches  there  to  what  is  understood  by  "loca- 
tion, ' '  a  quality  that  every  town  both  in  the  Old  and  the  New 
World  exhibits  in  some  measure,  but  one  which  assumes  a  dis- 
tinctive character  when  segregation  is  apt  to  follow  not  only 
the  more  usual  broad  distinctions  of  class  and  income  but  also 
minor  subdivisions  due  to  race  and  color.  In  general,  how- 


RENTS  IN  AMERICAN  TOWNS  73 

ever,  the  rental  differences  due  to  these  forms  of  segregation 
are  less  marked  than  the  differences  due  to  the  character  and 
general  advantageousness  of  the  dwellings  themselves. 

The  most  conspicuous  illustration  of  this  is  found  in  the 
housing  conditions  of  the  negroes  who,  although  as  a  class  they 
generally  have  to  pay  somewhat  more  than  the  white  man  for 
identical  accommodation,  are  found  frequently  paying  a  lower 
range  of  rent,  not  because  the  individual  houses  occupied  by 
them  are  more  moderately  rented  and  really  cheaper,  but 
rather  because  those  which  they  are  able  to  secure  rank  often 
amongst  the  older,  and,  more  uniformly,  among  the  less  de- 
sirable properties.  Such  conditions  are  illustrated,  for  in- 
stance, in  Baltimore  or  Savannah.  When,  as  in  New  York 
City,  much  the  same  class  of  dwellings  are  in  colored  as  in 
white  occupation,  a  somewhat  higher  level  of  rent  is  generally 
paid  by  the  former  class  of  tenant,  even  in  recognized  colored 
districts  and  always  in  districts  which  are  still  predominantly 
white.  .  .  , 

[Page  xxiv]  As  regards  housing  accommodation  in  general, 
there  is  much  evidence  of  an  activity  of  competition  among 
owners  and  builders  and  of  a  degree  of  material  prosperity 
that  are  tending  very  widely  to  raise  its  standard.  Thus,  al- 
though the  areas  of  deterioration  and  congestion  frequently 
found  and  the  occasional  rapidity  with  which  the  character 
alike  of  the  buildings  and  of  districts  is  apt  to  change  for 
the  worse  in  the  racial  kaleidoscope  of  American  towns,  mili- 
tate against  improvement,  the  general  standard  is  being  dis- 
tinctly raised.  Powerful  influences  to  this  end  are  found  in 
the  increasing  facilities  for  transit,  including  nearly  every- 
where electric  tramway  systems,  and  in  some  cases  in  the 
construction  of  bridges  and  tunnels  by  which  physical  bar- 
riers of  the  past  are  being  still  further  overcome.  Of  the 
power  of  these  influences  New  York  is  itself  perhaps  at  once 
the  most  important  and  the  most  striking  example.  But  a 
more  fundamental  explanation  of  this  improvement  is  found 
in  the  higher  standard  of  demand  that  follows  from  an  increas- 


74  RENTS  IN  AMERICAN  TOWNS 

ing  prosperity.  The  demand  for  improved  housing  itself  is, 
indeed,  a  natural  accompaniment  of  similar  changes  that  are 
taking  place  as  regards,  for  instance,  amusements,  clothing 
and  food,  in  all  of  which  a  great  variety  appears  to  be  resulting 
from  a  vast  and  an  increasing  effective  demand.  In  other 
directions  analogous  changes  are  manifest,  and  just  as  man- 
sions are  becoming  more  splendid  and  middle-class  homes  more 
replete  with  comfort,  so  cottages  and  smaller  homes  are  be- 
coming more  attractive  and  more  convenient.  Congested  areas 
of  crowded  dwellings  are,  it  is  true,  manifest  and  glaring  ex- 
ceptions to  this  rule,  while  the  not  infrequent  practice  of  build- 
ing more  flimsily  and  the  large  number  of  dwellings  still  being 
erected  for  three  or  more  families  are  opposed  to  it;  but  the 
general  tendency,  especially  as  regards  the  dwellings  in  the 
occupation  of  the  more  skilled  workmen,  is  nevertheless  to- 
wards a  marked  improvement 


THE  FAKMER'S  WOODLOT 

[THE  conditions  of  the  wood  supply  in  America  have  been  rapidly 
changing.  An  interesting  illustration  of  the  manner  in  which  this 
change  is  related  to  prices,  and  the  way  it  is  affecting  the  use  of  land 
for  timber  (which  is  coming  to  be  looked  upon  as  a  growing  crop 
instead  of  an  incumbrance  on  the  land),  is  found  in  a  portion  of 
"An  Agricultural  Survey,"  by  G.  F.  Warren,  and  others,  Bulletin  295, 
of  the  N.  Y.  State  College  of  Agriculture,  1909,  p.  464,  ff.] 

Development  of  the  woodlot.  A  little  over  a  hundred  years 
ago  Tompkins  County  was  covered  with  a  dense  stand  of  ex- 
cellent virgin  timber.  This  consisted  of  white  pine,  oaks, 
hemlock,  maples,  beech,  elm,  basswood  and  many  other  species. 
In  the  early  days  there  was  little  market  for  lumber  and  in  the 
haste  to  get  the  land  cleared  for  farm  purposes  much  of  the 
finest  timber  was  burned.  It  is  estimated  by  men  whose 
fathers  settled  the  county  that  fully  60  per  cent,  of  the  virgin 
forest  was  cut  and  burned  in  order  to  clear  the  land.  Un- 
fortunately, neither  the  early  or  later  clearing  had  much  ref- 
erence to  the  character  of  the  soil.  Woodlots  are  still  common 
on  some  of  the  level  rich  land;  and  poor  barren  hillsides 
that  are  too  steep  for  tilled  crops  or  even  for  good  pastures 
were  cleared.  There  seemed  to  be  no  plan  or  system  in  clear- 
ing land.  Whether  a  field  was  cleared  or  not  seems  to  have 
been  a  matter  of  chance  rather  than  a  result  of  judgment. 

Prices  of  lumber.  The  "log-run"  prices  of  timber  for  a 
number  of  years  show  how  rapidly  the  price  that  the  lumber- 
man gets  for  timber  has  increased.  Not  only  have  the  prices 
increased  but  many  kinds  of  lumber  that  once  had  no  value 
now  sell  at  fair  prices.  The  figures  in  Table  68  give  the 
average  prices  obtained  by  examination  of  the  books  of  some 

75 


76 


THE  FARMER'S  WOODLOT 


of  the  oldest  lumbermen.    They  are  for  the  lumber  just  as 
it  comes  from  the  saw-mill,  or  "log-run"  prices. 

TABLE  68.    AVEBAGE  "LOG-BUN"  PRICES  OP  TIMBER.    TAKEN  FROM 
LUMBERMEN'S  BOOKS. 


1843. 

1850. 

1860. 

1870. 

1880. 

1890. 

1900. 

1908. 

White   pine  .  . 
Hemlock     .  . 

$600 

$  800 
4  00 

$1200 
466 

$1666 
6  33 

$2133 

7  00 

$2400 
9  33 

$2800 
12  33 

$3500 
18  66 

White    oak.  . 

6  00 

7  50 

1400 

15  33 

1600 

18  66 

'    26  66 

Red    oak 

10  00 

12  00 

13  33 

14  50 

15  33 

18  33 

22  50 

Hickory    
White  ash 

.... 

18  00 
12  00 

2000 
12  50 

20  00 
16  00 

2250 
19  00 

2200 
19  00 

2600 
20  33 

2733 
'  26  00 

Cherry    
Uasswood 

.... 

7  00 
6  00 

12  50 
8  00 

1850 
9  00 

1950 
11  00 

2400 
12  66 

26  50 
15  66 

3500 
20  66 

6  50 

8  00 

10  50 

12  00 

14  33 

19  00 

Chestnut 

7  00 

8  00 

10  66 

14  66 

17  66 

21  33 

Elm    

9  00 

12  00 

1400 

1500 

19  50 

20  50 

Birch 

8  00 

10  00 

14  00 

14  50 

17  50 

21  50 

Beech 

5  00 

7  00 

11  00 

15  00 

Chestnut  rail- 

28-42c. 

28-45c. 

30-50C. 

Oak    railroad 
ties     

50 

50 

42-58 

45-60 

50-75 

Soft   cord- 

1  50 

2  00 

Hard    cord- 

300 

325 

400 

450 

4  00 

Present  condition  of  the  woodlots.  The  present  conditions 
of  the  farm  woodlots  in  Tompkins  County  are  representative 
of  the  conditions  of  the  woodlots  in  many  other  counties  in 
New  York  State.  They  might  well  be  described  as  irregular, 
detached  pieces  of  woodland,  consisting  of  all  sizes  and  ages 
of  mixed  deciduous  and  coniferous  species,  of  first,  second, 
and  stump  growths.  They  occupy  no  definite  position  as  re- 
gards soil  or  altitude.  Steep  hillsides  and  ravines  are  denuded 
of  their  forest  covers,  in  certain  sections,  and  in  other  sections 
more  or  less  thrifty  woodlots  occupy  good  agricultural  land. 
They  have  no  definite  relation  to  the  general  lay-out  of  the 
farms.  They  are  composed  of  dead,  diseased,  young,  mature 
and  weed  trees  all  thrown  in  together.  The  valuable  are  left 
to  struggle  for  supremacy  with  the  useless  but  hardy  species, 
and  in  addition  are  frequently  required  to  withstand  the  rav- 
ages of  stock.  The  fact  that  useful  woodlots  persist  in  spite  of 


THE  FARMER'S  WOODLOT  77 

these  conditions  is  evidence  of  the  excellent  adaptation  of 
this  region  to  the  growth  of  trees. 

It  is  a  deplorable  yet  self-evident  fact  that  only  a  few  of 
the  farmers  in  Tompkins  County  have  done  anything  toward 
improving  their  woodlots.  When  a  piece  of  land  is  cut  over, 
little  attention  is  given  to  saving  the  young  growth.  Prob- 
ably one-third  of  the  woodlots  of  the  county  are  being  pastured. 
Such  land  is  rarely  worth  much  as  a  pasture,  and  the  stock 
greatly  injure  the  woods. 

The  woodlots  are  worth  saving.  Farmers  are  usually  not 
aware  of  the  value  of  their  woodlots.  Estimation  of  the  value 
of  standing  timber  is  not  easy  for  an  experienced  lumberman. 
Many  farmers  seem  to  have  no  idea  of  the  value  of  timber. 
The  following  are  a  few  examples  taken  from  lumbermen's 
books: 

EXAMPLE  I. 

A  farm  of  122  acres,  80  acres  of  which  was  woodland  consisting  of 
mixed  hard  and   soft  wood  timber:    oak,   basswood,   hemlock,   maple, 
cherry,  beech,  ash,  birch,  elm. 
Proceeds  from  lumber  sales: 

500,000  ft.  mixed  lumber  at  $20.00  per  M $10,000 

500  cds.  slab  wood  at  50c 250 

Resold  farm  with  top  wood 700 

Total  sales $10,950 

Cost  of  cutting  and  marketing 4,250 

Net  sales $6,700 

Price  paid  for.  farm 1,750 


Profit $4,950 

EXAMPLE  H. 

A  farm  of  50  acres,  35  of  which  was  of  mixed  hardwood. 

Total  sales,  lumber  and  lot  resold $5,094 

Cost  of  cutting  and  marketing 1,500 

Net  sales $3,594 

Price  paid  for  farm 500 

Profit -. .- f $3,094 


78  THE  FARMER'S  WOODLOT 


EXAMPLE  III. 

A  lot  consisting  of  16  acres  of  mixed  hardwood. 

Proceeds  from  lumber  sales $2,194 

Cost  of  cutting  and  marketing 900 


Net  sales $1,294 


Profit    $794 

Cost  of  putting  lumber  on  the  market.  The  cost  of  put- 
ting lumber  on  the  market  is  quite  variable,  depending  on  the 
kind  of  lumber  and  the  distance  that  it  must  be  hauled.  The 
price  is  constantly  rising  as  wages  advance.  An  average  of 
$10  per  thousand  board  feet  is  perhaps  a  fair  estimate  for  a 
farmer  to  make. 

Most  of  the  timber  cut  in  Tompkins  County  is  sawed  by 
portable  sawmills.  The  lumber  then  has  to  be  hauled  to 
market.  The  distance  to  market  varies  greatly,  but  ordinarily 
it  is  two  to  six  miles.  The  estimated  cost  of  cutting  the  timber, 
sawing  and  delivering  to  market  is  as  follows : 

Cutting  (logs)  per  thousand  feet $     75 

Skidding  to  mill  per  thousand  feet 2  00 

Sawing  per  thousand  feet 3  00 

Sticking   (piling  lumber)    per  thousand  feet 40 

Delivering  to  market  per  thousand  feet 2  00 

Estimated  overrun  per  thousand  feet 35 

Total  expense  per  M.  board  feet $8  50 

The  woodlot  now  a  profitable  farm  crop.  As  an  example, 
a  farm  on  the  hill  lands  of  southern  Tompkins  County  con- 
sists of  100  acres,  30  acres  of  which  is  in  timber.  This  wood- 
lot  was  cut  in  1907  for  the  third  time  in  90  years.  Each  time 
it  has  been  cut  with  entire  disregard  for  the  future.  The  third 
cutting  on  the  30  acres  sold  for  $2,100,  standing.  In  spite 
of  the  present  high  price  of  lumber,  no  attention  was  given 
to  the  future  in  this  cutting.  Young  trees  that  were  scarcely 
worth  cutting,  but  that  would  be  valuable  in  10  to  20  years, 
were  cut.  Those  that  were  too  small  to  cut  were  broken  down. 


THE  FARMER'S  WOODLOT  79 

This  is  the  almost  universal  practice,  in  spite  of  the  profits 
that  come  from  such  a  woodlot. 

After  "  skinning "  the  woodlot,  the  entire  farm  of  100  acres, 
with  buildings,  was  sold  for  $1,400.  This  farm  would  not 
rent  for  $1  per  acre,  as  indicated  by  the  selling  price.  But, 
in  spite  of  the  owners,  it  has  grown  $70  worth  of  wood  per 
acre  since  the  last  cutting  30  years  ago.  If  the  $1  per  acre 
rent  were  placed  at  compound  interest  at  5  per  cent,  it  would 
not  amount  to  $70  at  the  end  of  30  years.  In  other  words, 
the  wood  land  pays  better  than  the  farm  land.  If  the  wood 
land  were  given  a  very  little  attention  in  cutting,  so  as  to  main- 
tain a  stand  of  the  best  kinds  of  trees,  the  returns  could  prob- 
ably be  doubled. 

As  another  example,  a  lot  consisting  of  35  acres  composed 
of  mixed  hardwood  was  cut  and  the  net  proceeds  from  the 
timber  sales  amounted  to  $4,938.  Men  who  knew  the  history 
of  this  woodlot  asserted  that  75  per  cent,  of  the  wood  had 
grown  in  the  past  22  years.  That  is,  the  lot  was  cut  over 
22  years  ago  and  the  greater  part  removed.  According  to 
these  estimates,  $3,704  of  timber  grew  on  the  35  acres  in  22 
years.  This  is  $106  per  acre  or  $4.82  per  acre  per  year. 
This  land  would  not  sell  for  over  $1 5  per  acre. 

These  examples  are  fairly  typical  of  southern  New  York 
woodlots.  Neither  of  them  received  any  care.  If  the  diseased 
trees  and  weed  trees  had  been  cut  and  the  woodlot  looked  after 
as  a  farm  crop,  the  income  would  have  been  much  greater. 

These  profits  are  based  on  what  is  made  when  lumber  is 
sold,  but  the  chief  use  of  a  woodlot  is  to  supply  posts  and 
lumber  for  farm  purposes.  If  lumber  and  posts  have  to  be 
purchased,  they  usually  cost  much  more  than  is  received  for 
those  that  are  sold.  So  that  the  profits  will  be  much  greater 
than  those  given  above. 

Suggestions  on  the  care  of  woodlots.  The  first  thing  to 
consider  in  the  management  of  a  woodlot  is  to  decide  where  one 
is  wanted.  There  are  some  areas  of  land  now  in  woodlots 
that  are  so  rich  and  valuable  that  it  may  be  best  to  cut  the 


80  THE  FARMER'S  WOODLOT 

wood  and  use  the  land  for  pasture  and  later  clear  it.  On 
other  farms  there  is  cleared  land  that  is  of  little  value  and  that 
had  best  be  set  to  trees.  On  still  other  farms  the  woodlot 
is  already  in  the  right  place.  If  it  has  been  decided  that  a 
woodlot  is  desired  in  a  certain  place,  this  area  should  be 
devoted  to  woods.  It  should  not  be  pastured.  If  it  is  needed 
for  pasture  it  will  pay  better  to  devote  half  of  it  to  pasture 
and  half  to  woods.  The  pasture  part  will  then  be  gradually 
cleared,  leaving  only  enough  trees  for  shade.  Half  the  area 
devoted  entirely  to  woods  will  probably  grow  as  much  wood 
as  the  entire  area  will  if  pastured.  It  is  poor  economy  to 
try  to  grow  trees  and  grass  on  the  same  land. 

After  the  area  to  be  devoted  to  woods  has  been  determined, 
the  woods  should  be  looked  on  as  a  regular  farm  crop.  The 
dead  trees,  the  ill  shaped  trees,  and  the  undesirable  kinds 
should  be  cut.  The  open  spaces  should  be  planted  with  good 
kinds  of  trees.  Nearly  all  of  this  work  can  be  done  in  winter 
or  at  other  times  when  little  or  no  work  would  otherwise  be 
done.  The  planting  can  be  done  very  rapidly  and  at  small 
cost. 

White  pine,  chestnut,  and  black  locust  are  the  most  de- 
sirable trees  to  plant.  White  pine  will  grow  well  in  most  of 
southern  New  York.  Chestnut  is  particularly  adapted  to  the 
poor  soils.  Black  locust  is  good  for  posts.  It  is  sometimes 
attacked  by  borers.  It  may  not  be  quite  so  good  for  the  poorer 
land  as  chestnut.  The  State  encourages  this  planting  by 
furnishing  trees  at  cost.  Directions  for  planting  are  sent  with, 
the  trees.  For  these  trees  address  the  State  Forester,  Albany, 
N.Y. 

When  the  woodlot  is  cut  the  young  trees  should  be  saved 
so  far  as  possible,  and  those  that  are  not  of  fair  size  should 
be  left  for  future  years. 


HAULING  FKOM  FARMS  TO  SHIPPING  POINTS 

[AN  example  of  the  economic  problem  of  place-value  is  found  in  the 
location  of  farms  relative  to  the  shipping  points  on  railroads  or  on 
navigable  waters.  The  Bureau  of  Statistics  of  the  U.  S.  Department 
of  Agriculture,  in  Bulletin  49,  issued  in  1907,  published  the  results 
of  an  inquiry  in  which  replies  were  received  from  correspondents  in 
nearly  two  thousand  counties.  Most  of  the  explanation  of  the  methods 
used  in  the  calculations,  and  most  of  the  detailed  tables  may  be 
omitted,  but  the  following  extracts  give  the  main  results  of  the  in- 
quiry.] 

Kates  of  hiring  and  actual  costs.  The  price  for  hiring  a 
team,  wagon,  and  driver  for  one  day  in  a  given  community  is 
taken,  in  this  investigation,  as  the  cost  of  hauling  in  that 
community — the  cost  to  the  farmer  to  perform  that  service  for 
himself.  It  is  known  that  farmers  in  the  United  States  usually 
do  their  own  hauling,  and  in  many  parts  of  the  country  the 
practice  prevails  of  exchanging  services,  so  that  a  number  of 
men  may  on  one  day  haul  enough  of  one  man's  produce  to  load 
a  railway  freight  car,  and  on  another  day  they  perform  the 
same  service  for  a  second  member  of  the  group,  continuing  this 
until  all  members  have  been  helped;  but,  as  a  general  fact, 
it  is  rare  that  a  farmer  hires  his  produce  hauled  to  a  shipping 
point  or  local  market,  and  in  many  communities  the  practice 
is  unknown. 

In  a  few  parts  of  the  wheat  regions  of  the  Mississippi 
Valley  farmers  hire  their  grain  hauled  at  certain  rates  per 
bushel;  and  professional  "freighters"  are  important  aids  to 
the  farmers  and  grazers  between  the  eastern  slope  of  the 
Rocky  Mountains  and  the  Pacific  coast.  This  region  is  one 
of  great  distances,  and  it  does  not  pay  all  of  the  producers 
to  keep  enough  horses,  wagons,  and  drivers  to  move  their 

6  81 


82  HAULING  FROM  FARMS 

wool,  cotton,  or  other  surplus  over  the  long  distances  of  50, 
75,  100,  and  even  150  miles  from  the  ranch  to  the  " local" 
shipping  point  or  market.  The  "  freighter "  will  take  the 
produce  for  a  moderate  charge,  and  on  his  return  trip  will 
bring  merchants'  goods  and  farm  supplies  from  the  distant 
railroad  station. 

Conditions  affecting  actual  cost.  Hauling  in  most  cases 
may  be  regarded  as  a  secondary  employment  for  the  horses, 
wagons,  and  drivers  of  the  farm,  the  chief  duties  of  the 
men  with  their  teams  being  on  farms  themselves.  .  .  .  But  the 
price  paid  for  hiring  may  be  regarded,  generally,  as  subject 
to  competition  and,  hence,  tending  to  equal  a  sum  which  will 
just  cover  the  actual  cost  of  performing  the  service  and  allow 
a  fair  profit  in  addition.  The  actual  cost  to  a  farmer  of 
performing  the  service  of  hauling  for  himself  may  in  certain 
instances  be  less  than  the  cost  of  hiring,  and  in  other  cases 
it  may  be  more.  The  hauling  may  be  done  when  no  other 
farm  work  is  pressing  and  when  teams  and  wagons  would 
have  no  other  employment.  One-half  the  cost  of  hauling  may 
be  saved  when  it  is  practicable  to  take  full  loads  on  the  re- 
turn trips.  Sometimes  farmers  haul  produce  to  market  and 
return  with  loads  of  fertilizer,  coal,  or  other  goods.  These 
back  loads,  however,  may  be  regarded  as  rather  exceptional, 
and  their  influence  upon  the  average  cost  per  load  of  produce 
hauled  from  the  farm,  as  computed  in  the  following  tables, 
is  not  known  to  be  important. 

On  the  other  hand  the  farmer's  expense  of  hauling  may 
be  increased  on  account  of  bad  roads;  he  may  be  compelled 
to  deliver  his  product  at  the  local  shipping  point  when  prices 
are  low  or  wait  for  a  better  market  and  run  the  risk  of  hav- 
ing to  haul  over  rough  roads  with  more  horses  to  the  wagon 
and  a  much  lighter  load.  Some  persons  prefer  to  sell  at 
a  lower  price  than  to  wait  for  a  better  market  and  incur  the 
expense  of  hauling  under  difficulties  which  may  amount  to 
double  or  even  four  times  the  normal  cost. 

Taking  into  consideration  the  low  and  the  high  costs  of 


HAULING  FROM  FARMS 


hauling,  it  does  not  appear  that  the  average  cost  is  not  about 
the  usual  price  for  hiring  in  that  community.  .  .  . 

Values  of  products  and  costs  of  hauling.  The  average 
costs  per  100  pounds  for  hauling  products  from  farms  to 
shipping  points  vary  in  a  number  of  instances  roughly  with 
the  relative  values  of  the  articles  hauled,  the  more  valuable 
product  being  hauled  often  at  greater  cost  than  the  less  valu- 
able product.  Corn,  wheat,  oats,  hay,  and  potatoes  were 

TABLE  1. — AVEBAGE  COSTS  OF  HAULING  PRODUCTS  FROM  FARMS  TO  SHIPPING 
POINTS:    TOTALS  FOR  STATES  REPRESENTED. 


'        hii 

Avera 

?e  — 

Product  hauled. 

Number 
counties 
reportin 

Miles  to 
shipping 
point. 

!i, 

Q2£ 

Pounds 
in  one 
load. 

1 
11 

M 

-*>    a 

wo  3 

62  a 

h 

H, 
III 

Apples 

114 

9  6 

0  9 

2  300 

$2  79 

$0  12 

$0  25 

226 

8  8 

7 

3,970 

2  67 

'07 

16 

Beans       

22 

9  0 

g 

3  172 

2  75 

09 

20 

Buckwheat    
Corn 

8 
981 

8.2 
7  4 

.8 
6 

2,438 
2  696 

2.90 
1  78 

.11 

07 

.27 
19 

Cotton      

555 

11  8 

1  0 

1  702 

2  76 

16 

27 

Cottonseed     
Flaxseed      

110 
51 

10.7 
10  4 

.9 

7 

1,654 
3  409 

2.42 
2.70 

.15 

.08 

.28 
15 

Fruit     (other    than 
apples) 

99 

11  6 

1  1 

2  181 

3  53 

16 

28 

Hay          ... 

761 

8  3 

7 

2  786 

2  32 

08 

19 

Hemp  a,      

7 

5.2 

.7 

3,393 

2  10 

06 

23 

Hogs    (live) 

316 

7  9 

7 

b  1  941 

2  00 

b  10 

b  25 

Hops    

14 

11.7 

1.0 

3,665 

3.89 

11 

19 

Oats 

798 

7  3 

6 

2  772 

1  82 

07 

19 

Peanuts     

19 

8.1 

.6 

1,363 

1  67 

.12 

30 

Potatoes    

569 

8.2 

.7 

2,679 

2.34 

.09 

.22 

Rice     

18 

7.5 

.8 

2,407 

2.70 

.11 

.29 

Bye 

78 

8  4 

7 

2  625 

2  23 

08 

19 

Timothy    seed  c.  .  . 
Tobacco     

5 
113 

8.0 
9.8 

.8 
.8 

2,410 
2,248 

1.92 
2.28 

.08 
.10 

.20 
.20 

Vegetables      (other 
than     potatoes)  . 
•Wheat             .  .    . 

152 
1  051 

9.8 
9  4 

.9 

.8 

1,852 
3,323 

2.84 
2.86 

.15 

.09 

.31 
.19 

Wool 

41 

39  8 

5  6 

4  869 

21  39 

44 

22 

a  Kentucky  only,     b  Average  for  six  States  only,     c  Iowa  only. 

hauled  at  costs  ranging  from  7  to  9  cents  per  100  pounds, 
cotton  16  cents,  and  wool  44  cents  per  100  pounds.  Tobacco 
and  hogs,  however,  cost  only  10  cents  per  100  pounds  to  be 
hauled  from  farms.  The  difference  in  cost  of  hauling  be- 
tween one  product  and  another  is  largely  due  to  the  relative 
distance  traversed  and  the  relative  size  of  load  taken.  It 


84  HAULING  FROM  FARMS 

will  pay  to  produce  cotton  farther  away  from  local  shipping 
points  than  grain,  and  150  miles  is  not  too  far  to  haul  wool 
from  ranches  to  railroad  stations.  Hogs  being  produced  gen- 
erally where  grain  is  also  a  surplus  crop,  the  prevailing  dis- 
tances and  methods  of  hauling  for  the  cheaper  products  would 
affect  the  cost  of  hauling  the  higher-priced  commodity. 

Hauling  cotton  and  wool.  [Of  the  detailed  comment 
(Bulletin,  pages  14-34)  upon  the  various  crops  in  the  different 
States,  only  a  part  regarding  cotton  and  wool  is  here  given.] 
...  As  in  the  case  of  nearly  all  other  farm  products,  cotton 
is  generally  hauled  to  local  shipping  points  by  the  farmers 
themselves,  and  hiring  such  work  done  is  the  exception.  Ow- 
ing to  its  high  value,  cotton  may  be  transported  profitably  in 
much  smaller  loads  and  for  longer  distances  than  a  less  valu- 
able article,  as  grain  or  hay.  It  is  noted  that  the  average 
load  of  cotton  weighs  about  one-half  as  much  as  the  average 
load  of  wheat  in  the  United  States,  but  a  load  of  cotton,  at 
prices  prevailing  in  October,  1906,  was  worth  more  than  four 
average  loads  of  wheat. 

For  the  United  States  the  average  cost  of  hauling  cotton 
from  farms  to  shipping  points  is  about  80  cents  per  bale,  and 
the  average  load  is  a  fraction  more  than  three  bales.  One- 
horse  carts  and  wagons  and  ox  carts  are  found  more  service- 
able in  hauling  the  main  crops  in  the  cotton  region  than  in 
the  grain  country,  and  their  use  helps  to  account  for  the 
small  average  loads.  It  is  of  interest  to  see  that  one  of  the 
smallest  average  loads  of  cotton  for  any  State  or  Territory 
is  in  Florida,  wnere  about  one-half  the  crop  consists  of  Sea 
Island  cotton,  a  variety  much  more  valuable  than  the  rest 
of  the  cotton  produced  in  the  United  States.  .  .  . 

The  average  cost  of  hauling  wool  to  shipping  points  is  high 
on  account  of  the  great  distances  traversed,  the  average 
for  the  United  States  being  39.8  miles,  and  the  distance  in  at 
least  one  county  whose  returns  enter  into  the  averages  was 
150  miles.  Hauling  over  these  long  routes  is  usually  done 
by  freight  wagons,  owned  and  driven  by  persons  other  than 


HAULING  FROM  FARMS  85 

the  producers  of  the  wool,  and  the  rates  actually  paid  for 
hauling  are  used  in  these  instances  as  the  cost  of  wagon  trans- 
portation from  farm  or  ranch  to  shipping  point.  The  large 
number  of  actual  rates  paid  entering  into  the  average  cost  of 
hauling  wool  in  the  United  States  makes  this  figure  (44  cents 
per  100  pounds)  appear  to  be  one  of  the  most  accurate  of  the 
average  costs  determined. 

The  value  of  an  average  load  of  wool  ranges  from  $500 
to  $900  and  allows  for  a  high  cost  to  get  it  to  the  shipping 
point,  and  even  the  cost  of  71  cents  per  100  pounds  for  the 
county  reported  in  Arizona  and  the  five  counties  in  Oregon 
is  not  too  large  in  proportion  to  the  value  of  the  load.  .  .  . 

The  farmers'  longest  hauls.  The  conditions  of  hauling 
from  farms  over  the  longest  routes  reported  for  each  product 
are  given  in  Tables  23  to  40.1  While  there  may  be  longer 
hauls  for  farming  communities  in  the  United  States  in  the 
cases  of  some  or  all  the  crops  mentioned  in  these  tables,  the 
instances  as  reported  here  serve  to  illustrate  extreme  costs 
of  wagon  transportation.  It  is  not  to  be  supposed  that  all  or 
any  considerable  number  of  these  great  costs  of  hauling  per- 
mit the  products  in  question  to  be  sold  profitably  at  prices 
which  would  prevail  in  a  large  commercial  center. 

Potatoes  hauled  70  miles  over  Colorado  roads  at  a  cost  of 
84  cents  per  bushel,  as  given  in  Table  23,  could  be  sold 
only  at  some  local  market  where  prices  were  far  above  those 
in  most  parts  of  the  United  States;  and  the  corn,  rye,  and 
vegetables  carried  over  the  Georgia  mountains  from  the  ex- 
treme northern  part  of  the  State  down  to  Gainesville,  a  dis- 
tance of  some  60  miles,  do  not  represent  a  considerable  por- 
tion of  the  general  supply  of  those  products  in  Georgia,  and 
their  extensive  production  under  such  great  costs  of  delivery 
is  out  of  question. 

By  taking  on  the  same  load  with  grain  or  vegetables  a  con- 
siderable amount  of  poultry,  eggs,  and  butter,  a  farmer  can 

i  [Only  Table  23  is  here  reproduced,  In  which  is  indicated  the  one 
longest  haul  reported  for  each  of  the  crops  mentioned. — ED.] 


HAULING  FROM  FARMS 


make  his  long  trip  to  town  pay,  so  that  the  total  cost  of  haul- 
ing the  load  falls  but  slightly  upon  the  less  valuable  part 
of  it.  A  half-ton  load  of  produce  taken  from  farm  to  local 
market  or  shippihg  point  at  a  cost  of  $16  might  easily  con- 
tain, in  addition  to  several  bushels  of  grain  or  potatoes,  enough 
poultry,  butter,  and  eggs  to  make  the  total  value  of  the  load 
from  $30  to  $50. 

TABLE   23. — COSTS   OF   HAULING   PRODUCTS   IN   THE  UNITED    STATES   FROM 
MOST  REMOTE  FARMS  TO  SHIPPING  POINTS,  AS  REPORTED. 


Product  hauled. 

State  or  Terri- 
tory reporting 
most      remote 
farms. 

% 

i!& 

li 

0 

II* 

Q2£ 

1h 

£.S£ 

1 
ll 

Cost  per 
100 
pounds. 

Arkansas     .... 

50  0 

4.5 

2,000 

$12.38 

1    $0.62 

Barley      

New  Mexico 

57  5 

4  0 

2  000 

22  00 

1  10 

Corn         . 

Georgia 

60  0 

8  0 

1  000 

16  00 

1  60 

Texas 

110  0 

8  0 

3  000 

24  00 

80 

Cottonseed 

50  0 

3  0 

1  000 

7  50 

75 

Flaxseed    
Fruit     (other    than 

South    Dakota. 
Utah    

50.0 
52  5 

2.5 
4.5 

2,500 
3,000 

15.00 
13.50 

.60 
.45 

apples)     

Hay 

New  Mexico 

80  0 

5  0 

2  000 

15  00 

75 

Hogs    (live)  

Texas 

31  5 

3  0 

(a) 

7  50 

(a) 

Oats         ...      . 

Utah 

100  0 

14  0 

7  000 

35  00 

50 

Potatoes    . 

70  0 

7  0 

2  500 

35  00 

1  40 

Rice 

22  5 

2  0 

2  000 

8  00 

40 

Rye    

60  0 

8  0 

1  000 

16  00 

1  60 

Tobacco  

50  0 

4  0 

1  600 

8  00 

50 

Vegetables      (other 

Georgia 

60  0 

8.0 

1,000 

16.00 

1.60 

Wheat    . 

Utah    

100.0 

14.0 

7,000 

35.00 

.50 

Wool 

Oregon.    

165.0 

24.5 

7,000 

61.25 

.88 

a  Not  reported. 

Methods  of  hauling.  In  the  North  Central  States  much 
of  the  grain  hauled  from  farms  is  taken  in  bulk,  and  the  size 
of  load  is  determined  by  the  capacity  of  the  wagon  box.  Ad- 
ditional sides  and  end  pieces  are  put  on  when  it  is  desired  to 
haul  larger  loads,  especially  when  such  a  light  grain  as  oats 
is  taken.  When  a  farmer  intends  to  load  a  car  with  grain, 
and  it  is  necessary  to  haul  from  ten  to  twenty  wagonloads 
within  a  day  or  so,  he  often  will  be  helped  by  a  number  of 
neighbors.  He  in  turn  will  aid  them  when  they  haul. 


HAULING  FROM  FARMS  87 

It  is  a  common  practice  to  haul  wheat  and  other  small  grain 
direct  from  thrasher  to  car.  The  grain  is  loaded  as  rapidly 
as  thrashed  and  each  wagon  in  turn  is  driven  to  the  shipping 
point,  where  a  wagon  dump  is  often  used  for  unloading  the 
grain.  This  dump  is  a  platform,  on  which  a  loaded  wagon 
is  driven,  the  end  gate  of  the  wagon  box  removed,  and  the 
parts  of  the  platform  upon  which  the  hind  wheels  of  the  wagon 
rest  are  lowered  so  that  the  grain  falls  into  a  space  below. 
It  may  be  received  into  a  bin  under  the  platform  for  tem- 
porary storage,  or  may  be  conveyed  immediately  by  mechanical 
means  to  cars  or  up  to  bins  in  an  elevator. 

Corn  also,  in  some  places,  is  handled  in  a  similar  way,  the 
wagons  receiving  their  loads  from  the  machine  on  the  farm 
as  the  corn  is  being  shelled. 

The  use  of  large  wagons  with  broad  tires  and  teams  of 
four,  five,  and  six  horses  enables  farmers  of  certain  parts 
of  the  United  States,  notably  in  the  hill  country  of  Mary- 
land and  the  adjoining  counties  in  Pennsylvania,  to  carry 
their  products  to  shipping  points  and  local  markets  in  loads 
of  two  or  more  tons  each.  Since  one  of  these  large  wagons 
holds  at  least  twice  as  much  as  an  average  two-horse  wagon, 
one  driver  performs  with  the  larger  outfit  twice  as  much  serv- 
ice as  he  can  with  the  smaller  one.  Where  wages  are  high 
the  economy  in  the  use  of  the  four-horse  wagon  is  consider- 
able. ..." 

The  general  use  in  the  far  West  of  regular  freight  wagons 
owned  and  driven  by  persons  other  than  the  owner  of  the 
products  carried  has  already  been  mentioned.  ...  In  order 
that  one  driver  may  take  charge  of  a  large  amount  of  freight, 
two  or  more  wagons  are  often  coupled  together  and  the  en- 
tire train  is  drawn  by  a  number  of  horses,  mules,  or  ponies. 
The  loads  taken  by  a  freight  wagon,  with  its  trailers,  are 
said  to  weigh  at  times  as  much  as  seven  tons,  and  as  many  as 
twelve  or  fourteen  horses  are  sometimes  used  in  one  team. 
Since  the  freight  wagon  carries  goods  also  on  its  return  trip, 


88  HAULING  FROM  FARMS 

its  earnings  do  not  depend  solely  upon  hauling  farm  prod- 
ucts. .  .  . 

Total  costs  of  hauling  done  in  1905-6.  The  quantity  of 
all  farm  products  hauled  to  shipping  points  in  the  United 
States  in  a  given  time  is  not  to  be  obtained  with  much  accur- 
acy from  present  sources  of  information,  but  for  twelve  crops 
the  quantity  hauled  from  farms  may  be  estimated  approxi- 
mately. .  .  .  The  total  weight  of  twelve  products  hauled  from 
farms  ...  is  about  43,000,000  tons,  and  the  total  cost  of 
hauling  this  amount  was  $73,000,000.  The  average  cost  per 
ton  was  $1.80. 

The  weight  of  wheat  and  corn  hauled  from  farms  in  1905-6 
was  31,000,000  tons,  while  cotton  and  nine  other  surplus  prod- 
ucts weighed  altogether  only  12,000,000  tons.  The  heaviest 
crop,  and  the  one  costing  most  to  haul  to  shipping  points,  was 
corn,  and  next  in  order  was  wheat.  The  barley  crop,  less  an 
allowance  for  seed  retained,  was  heavier  than  the  cotton  crop, 
but  cost  about  one-half  as  much  to  haul  to  shipping  points. 

The  relatively  low  price  of  corn  made  it  cost  9.6  cents  to 
market  a  dollar's  worth  of  this  grain,  while  a  dollar's  worth 
of  wheat  was  taken  to  shipping  points  for  7.2  cents,  a  dollar's 
worth  of  cotton  for  1.4  cents,  and  a  dollar's  worth  of  tobacco 
was  hauled  for  as  little  as  1.2  cents. 

The  high  rate  per  100  pounds  (44  cents)  for  hauling  wool 
amounted  to  only  2.7  per  cent,  of  the  value  of  the  article  as 
given  in  the  Twelfth  Census.  The  average  cost  of  hauling 
from  farms  to  shipping  points  for  the  twelve  articles  men- 
tioned was  5.2  per  cent  of  their  value.  .  .  . 

As  this  bulletin  treats  only  of  hauling  from  farms  to  ship- 
ping points,  the  quantity  of  wheat  hauled  to  local  mills  for 
grinding  is  not  included  in  the  total  of  24,246,000,000  pounds 
as  given.  The  entire  wheat  crop  of  1905  amounted  to  692,- 
979,489  bushels.  Allowing  1%  bushels  per  acre  for  seed,  the 
quantity  used  on  the  47,305,829  acres  sown  in  the  fall  of  1905 
and  spring  of  1906  would  equal  71,000,000  bushels.  This 
amount  together  with  the  quantity  shipped  out  of  county 


HAULING  FROM  FARMS  89 

where  grown  being  subtracted  from  the  total  crop,  there  re- 
mains about  6,500,000  tons  of  wheat,  which  may  be  taken  as 
approximately  the  quantity  hauled  from  farms  for  the  use 
of  local  mills.  With  this  home-ground  wheat  added  to  the 
total  weight  of  traffic  as  given  above,  the  sum  would  be  over 
49,000,000  tons.  And  the  cost  of  hauling  this  wheat  to  local 
mills,  if  computed  at  the  same  rate  as  the  cost  of  hauling 
to  shipping  points,  would  amount  to  $11,700,000.  This, 
added  to  the  total  cost  of  hauling  to  shipping  points  as  given 
above,  would  equal  $33,521,000  for  wheat  and  $84,684,000 
for  all  crops  mentioned. 

Value  of  better  facilities.  The  cost  of  wagon  transporta- 
tion would  be  lowered  if  the  size  of  load  were  increased,  or 
the  time  of  round  trip  shortened,  or  if  both  these  changes  were 
effected;  and  either  of  them  could  be  brought  about  in  many 
communities  by  improving  certain  roads.  The  cost  of  hauling 
should  be  considered  in  connection  with  expenditures  for  build- 
ing and  improving  roads.  The  size  of  loads  might  be  in- 
creased, without  a  proportional  increase  in  cost  of  hauling 
per  100  pounds,  by  using  larger  wagons  with  more  horses  or 
by  driving  heavier  and  stronger  horses  or  mules;  and  the 
cost  of  hauling  might  be  further  reduced  by  quickened  methods 
of  loading  and  unloading. 

Improvements  which  would  reduce  the  cost  of  hauling  by 
one-tenth  would  effect  a  saving  of  $7,000,000  in  hauling  from 
farms  to  shipping  points  in  the  United  States  the  products 
and  quantities  mentioned,  and  $1,000,000  more  would  be  saved 
in  the  cost  of  hauling  wheat  for  the  use  of  local  mills,  to  say 
nothing  of  the  amounts  saved  in  hauling  the  unknown  surplus 
of  the  crops  not  mentioned  in  this  table,  such  as  hay,  potatoes, 
rye,  buckwheat,  fruit,  vegetables,  sugar  cane,  and  sugar  beets. 
If  it  costs  a  farmer  5  cents  per  bushel  to  haul  his  wheat  to 
the  shipping  point  when  he  requires  one  day  to  make  a  round 
trip,  he  might  save  $25  on  a  crop  of  1,000  bushels  if  he  could 
make  two  trips  per  day;  or,  if  he  still  made  but  one  trip 
a  day  but  could  increase  the  load  from  50  to  75  bushels 


90  HAULING  FROM  FARMS 

without  adding  to  the  number  of  horses,  he  might  reduce  the 
cost  of  hauling  by  one-third,  thus  saving  about  $17. 

The  average  load  of  cotton,  if  increased  to  twice  its  present 
size  and  thus  made  about  the  same  as  the  average  load  of 
wheat,  might  be  hauled  at  little  more  than  one-half  its  pres- 
ent cost  per  100  pounds.  Lowering  the  average  cost  of  haul- 
ing cotton  from  16  cents  per  100  pounds,  as  it  now  seems 
to  be,  to  8  cents,  would  effect  a  saving  of  about  40  cents  per 
bale,  and  the  total  amount  saved  on  a  crop  equal  to  that  of 
1905  would  probably  exceed  $4,000,000. 


LAND  FROM  THE  WATERS 

[!N  a  remarkable  little  book,  Man  and  the  Earth  (New  York, 
1906),  Nathaniel  S.  Shaler,  late  professor  in  Harvard  University, 
surveyed  broadly  the  resources  of  the  earth,  showing  how  some  are 
inevitably  diminishing,  and  how  others  may  be  increased  and  improved. 
In  the  chapter  "The  Unwon  Lands,"  the  subject  of  irrigation  is  treated; 
then  comes  the  chapter  on  drainage,  pp.  87-100,  which  is  here  re- 
printed by  kind  permission  of  the  author's  family  and  of  the  pub- 
lishers, Fox,  Duffield  and  Co.] 

How  the  waters  encroach  on  the  lands.  When,  in  the 
process  of  building  the  continents,  their  surfaces  are  lifted 
above  the  plane  of  the  sea,  they  normally  become  dry  land, 
and,  unless  too  arid,  are  fit  for  the  uses  of  those  flowering 
plants  on  which  man  depends  for  food.  There  are,  how- 
ever, a  number  of  accidents  which  serve  to  retain  a  covering 
of  water  on  these  fields  so  as  to  make  them  unsuited  to  the 
uses  of  the  higher  plant  life.  The  land  may  rise  irregularly, 
leaving  the  depressions  on  its  surface  which  become  lakes. 
Like  depressions  may  be  formed  by  the  downward-sinking 
areas,  by  the  process  which  geologists  term  folding.  Again, 
glacial  action,  by  the  irregular  wearing  of  the  rocks  or  the 
curious  irregular  heaps  of  debris  it  leaves  on  the  surface, 
creates  a  multitude  of  hollows,  forming  lakes,  until  they  are 
converted  into  peat  bogs.  Yet  again,  in  humid  countries 
mosses  and  even  reeds  may  by  their  matted  vegetation  hold 
the  rainfall  as  in  a  sponge,  so  that  even  hillsides  become 
mantled  with  the  boggy  covering.  Still  further,  the  sea- 
shores have  the  amphibious  zone  of  the  tides,  half  land  and 
half  water,  where  the  two  "elements,"  as  the  ancients  termed 
them,  strive  for  mastery.  The  result  of  these  conditions  is 
that,  when  the  critic  man  comes  to  survey  the  lands  and  judge 

91 


92  LAND  FROM  THE  WATERS 

them  in  general  very  good,  he  has  to  note  that  much  of  their 
fields  have  not  effectively  escaped  the  primal  realm  of  the 
waters — that  there  is  still  much  for  his  arts  to  mend. 

Large  area  reclaimable.  It  is  surprising  how  large  a  part 
of  the  what-we-call  land  is  so  far  occupied  by  water  as  to 
make  it  in  its  natural  state  unserviceable  for  agriculture. 
In  the  tropical  regions  these  areas  of  bog  and  lake  are  least 
extensive;  in  that  realm  occupying  probably  not  more  than 
ten  per  cent,  of  the  area.  But  in  higher  latitudes  and  in 
proportion  as  we  approach  the  poles  a  greater  part  of  the 
field  is  permanently  inundated,  so  that  from  the  parallels 
of  40°  to  the  limits  that  climate  sets  on  agriculture  somewhere 
near  one-fourth  of  the  land  area  is  in  its  primitive  condition 
unsuited  to  the  uses  of  man  and  has  to  be  won  to  his  service 
by  the  devices  of  the  engineer. 

Drainage  in  Europe.  In  Europe,  because  of  the  antiquity 
and  high  grade  of  its  culture,  the  process  of  winning  the  in- 
undated lands  to  use  has  already  gone  very  far,  so  far,  in- 
deed, that  in  ten  centuries  the  aspect  of  the  land  has  been 
greatly  changed.  Thus  in  Great  Britain,  at  the  time  of  Alfred 
the  Great,  near  one-third  of  the  area  of  the  island  was  beset 
with  marshes  or  with  lands  of  the  bog  type.  These  impene- 
trable swamps  appear  in  large  measure  to  have  formed  the 
boundaries  of  the  separate  little  kingdoms  of  the  Heptarchy, 
and  to  have  been  even  more  effective  barriers  than  the  open 
sea.  The  redemption  of  these  lands  probably  began  in  Saxon 
times,  if  not  earlier,  but  it  appears  to  have  gone  forward 
slowly  until  the  reign  of  James  I,  when  the  population  of 
England  began  to  press  upon  the  means  of  subsistence  and 
the  work  of  draining  the  fens  was  rapidly  carried  on.  As 
an  adventurer  in  this  business  Oliver  Cromwell,  it  is  said, 
had  his  first  clash  with  his  sovereign.  Along  with  others  he 
had  an  important  drainage  concession  from  the  crown,  one 
that  was  peculiarly  favorable  for  the  reason  that  a  Dutch 
company  had  failed  in  the  same  undertaking.  When  Crom- 
well was  successful  and  in  a  position  to  profit  largely  by  his 


LAND  FROM  THE  WATERS  93 

success,  the  impecunious  Charles  I  appropriated  a  consider- 
able part  of  his  rightful  gains.  It  is  not  unlikely  that  this 
action  of  the  king  had  in  the  end  to  do  with  his  discovery 
of  the  important  fact  that  "he  had  a  joint  in  his  neck." 

In  Holland  this  process  of  reclaiming  inundated  lands  has 
been  carried  much  further  than  in  any  other  country.  When 
agriculture  began  in  this  region  about  the  mouth  of  the  Rhine, 
probably  not  one-tenth  of  the  land  now  tilled  was  fit  for  that 
use.  What  was  not  covered  with  morasses  lay  beneath  the 
level  of  the  tide.  In  some  fifteen  hundred  years  the  stout- 
hearted folk  have  made  the  most  signal  conquest  ever  effected 
by  man  in  this  winning  of  a  state  from  the  waters  of  sea 
and  land.  Work  of  the  same  nature  and  hardly  less  extensive 
has  been  done  all  along  the  lowlands  which  border  the  North 
Sea  and  the  Baltic.  Thus  the  fields  of  Northeastern  Europe, 
in  Great  Britain,  Ireland,  the  Low  Countries,  North  Germany, 
and  Scandinavia,  which  now  support  the  agriculture  of  at 
least  thirty  million  hardy  people,  have  been  won  from  bogs, 
marshes,  and  the  bottom  of  the  sea — areas  which  in  America, 
save  in  a  local  and  unimportant  way,  have  been  quite  over- 
looked. 

Other  areas  to  drain  in  Europe.  The  task  of  winning  land 
from  the  waters  which  has  been  so  well  done  in  Northeastern 
Europe  and,  in  some  measure,  throughout  that  so-called  conti- 
nent, is  by  no  means  completed.  Even  in  Holland  there  are 
great  works  still  under  way  which  some  time  during  the  present 
century  will  make  yet  further  additions  of  hundreds  of  square 
miles  won  from  the  shallows  of  the  sea  to  its  tillable  fields. 
In  Russia  there  are  vast  areas  awaiting  the  drainage  engineer 
to  bring  them  to  the  service  of  men  so  that  they  may  yield 
the  food  for  millions  of  people.  Even  in  Italy,  that  most 
ancient  seat  of  high  tillage  and  of  crowded  population,  there 
are  extensive  projects  for  reclaiming  inundated  areas  now 
under  discussion.  These  facts  show  us  that  in  the  reserves  of 
land  to  be  won  before  the  world  is  fully  peopled,  we  have  to 
reckon  largely  on  the  parts  of  it  which  are  to  be  reduced  to 


94  LAND  FROM  THE  WATERS 

service  by  drainage.  This  reckoning  is  hard  to  make,  for  the 
reason  that  outside  of  Europe  scarcely  any  attention  has  been 
given  to  the  problems  of  drainage,  so  that  but  an  approach 
to  the  truth  is  attainable. 

Draining  the  sea  floor.  First  let  us  note  that  the  most 
extensive  of  the  inundated  lands  is  the  sea  floor,  and  that 
from  its  shallower  part  next  the  land  the  important  gains  of 
Holland  have  been  made.  The  conditions  which  permit  such 
winning  are  very  common  along  most  seashores;  an  embayed 
area  of  shallow  water,  where  the  tides  have  a  considerable  rise 
and  fall,  and  where  the  winds  are  constant  and  strong  enough 
to  serve  for  pumping,  is  always  available;  but  the  bottom 
of  the  area  to  be  drained  must  afford  the  materials  for  a  fertile 
soil,  as  it,  in  fact,  very  generally  does.  It  is  not  imperatively 
necessary  that  the  shallows  lie  on  the  shores  of  a  tidal  sea 
so  long  as  windmills  close  set  by  the  margin  of  the  area  to  be 
drained  will  serve  to  lower  and  keep  down  the  water;  there 
then  is  only  the  simple  question  of  time  and  cost  to  bring 
the  dyke's  area  into  tillage. 

The  drowned  valleys.  The  conditions  of  embayed  waters 
of  no  great  depth,  and  bottoms  that  will  be  fertile  when 
drained,  are  normally  found  about  the  mouths  of  the  larger 
rivers.  The  reason  for  this  is  that  a  recent  geological  acci- 
dent, the  newest  of  all  having  a  world-wide  effect,  consisted 
in  a  general  rise  of  the  sea  to  the  extent  of  some  hundred 
feet,  due  to  the  upward  movement  of  a  portion  of  the  deep- 
sea  floor.  The  gain  of  the  sea  on  the  land  led  to  the  flood- 
ing of  the  valleys  of  the  greater  rivers  for  a  long  distance 
upward  from  their  ancient  mouths;  forming  such  great  re- 
entrants of  the  sea  as  we  have  well  preserved  in  the  admir- 
able examples  of  the  Chesapeake  and  Delaware  Bays.  In 
many  cases  these  drowned  valleys  have  been  so  far  filled  in 
with  delta  deposits,  as  in  the  case  of  the  Mississippi,  that  the 
alluvial  plain  again  projects  out  into  the  sea  as  at  its  mouth 
and  at  the  Nile;  more  commonly  there  is  an  embayment,  as 
in  'the  case  of  Mobile  Bay.  In  any  event  this  inundated 


LAND  FROM  THE  WATERS  95 

valley  is  certain  to  have  more  or  less  extensive  areas  of  shallow 
water  which,  as  in  Holland,  may  be  drained  and  turned  to 
cultivated  fields. 

The  work  of  the  mangrove  trees.  Besides  the  land  won 
from  the  sea  by  the  plants  which  develop  the  marine  marshes 
in  the  higher  latitude,  we  find  in  the  tropics  a  group  of  trees 
known  as  mangroves,  which  have  an  even  more  swift  and 
effective  method  of  capturing  land  in  shallow  embayments. 
These  trees  are  fitted  to  grow  in  salt-water  silt,  submerged  it 
may  be  by  some  feet  at  high  tide.  They  have  long  runner- 
like  branches  which,  as  they  grow,  extend  outward  and  down- 
ward into  the  water  of  the  bays  until  they  touch  the  bottom, 
where  they  take  root  and  form  new  crowns  and  stems  which 
in  like  manner  send  their  runners  further  seaward.  In  this 
way  a  mangrove  swamp  will  speedily  close  over  a  shallow 
bay  even  if  it  be  some  miles  in  width,  covering  it  with  a  dense 
low  forest.  While  the  trees  are  thus  marching  outward,  their 
seed,  long  cylinders  in  form,  with  grapples  at  their  lower  end, 
catch  on  the  bottom  as  they  drift  away  from  the  plant  that 
bore  them,  rapidly  grow  to  the  surface  of  the  water,  and  found 
new  plantations.  Beneath  the  very  dense  growth  of  the  man- 
groves the  scouring  action  of  the  tides  and  waves  is  arrested 
and  a  rapid  deposit  of  plant  and  animal  remains  takes  place, 
so  that  what  was  sea  bottom  is  soon  lifted  to  the  state  of  a 
fresh-water  swamp.  As  there  are  numerous  varieties  of  man- 
groves in  the  tropical  regions,  some  of  which,  as  in  Florida, 
extend  their  range  to  several  degrees  further  toward  the  poles, 
the  area  they  occupy  and  the  land  they  have  won  from  the 
sea  are  alike  great.  There  is  no  basis  for  a  reckoning  as  to 
the  extent  of  their  work,  but  it  is  evident  that  in  the  aggre- 
gate these  fields  must  amount  to  some  tens  of  thousand  square 
miles,  all  of  which  have  been  brought  by  these  remarkable 
plants  into  the  state  where  the  engineer  may  easily  complete 
the  work  of  converting  them  to  the  uses  of  man. 

Area  reclaimable  from  the  sea.  Although  the  basis  for 
computation  is  imperfect,  it  may  fairly  be  reckoned  that  in 


96  LAND  FROM  THE  WATERS 

this  debatable  ground  of  the  shore  zone  now  occupied  by  mud 
flats,  marshes,  and  mangrove  swamps,  there  is  a  reserve  of 
land  awaiting  such  work  of  improvement  as  has  been  done 
in  Holland,  amounting  to  an  aggregate  area  of  not  less  than 
200,000  square  miles  of  land  which  with  a  fully  peopled  earth 
will  be  brought  into  tillage.  As  this  land  is  of  rare  fertility 
and  enduring  to  the  tax  of  cropping  beyond  that  of  any  up- 
land fields,  it  has  a  prospective  value  as  a  human  asset  far 
beyond  an  equal  area  of  ordinary  ground.  They  are  likely, 
in  time,  to  afford  the  food  for  several  hundred  million  people. 

Area  reclaimable  from  rivers.  Turning  now  to  the  areas 
of  the  continents  which  are  occupied  by  the  fresh  waters,  as 
in  swamps  and  lakes,  we  find  a  more  extensive  set  of  fields 
for  reclamation  than  on  the  seashore  belt — and  a  much  greater 
variety  of  problems  for  the  work  of  the  drainage  engineer. 
First  we  will  consider  the  clearly  limited  group  of  areas  which 
lie  along  the  great  rivers,  where  the  annual  floods  render  the 
land  untillable.  The  higher  parts  of  these  alluvial  plains 
where  the  annual  inundations  are  such  as  to  prevent  tillage 
are  easily  dealt  with  by  ordinary  dyking,  and  have  been  thus 
improved  in  all  the  great  valleys  of  long-occupied  countries. 
Yet  there  remains  along  the  larger  streams  of  Africa,  the 
Americas,  and  Northern  Asia  aggregating  several  hundred 
thousand  square  miles  of  naturally  fertile  land  still  unwon  to 
use.  A  rough  reckoning  of  these  areas  which  gives  only  ap- 
proximate results,  indicates  that  the  possible  winning  in  the 
ultimate  state  of  culture  will  amount  to  not  less  than  300,000 
square  miles  with  a  tillage  value  for  the  area  quite  as  great 
as  that  which  may  be  had  from  the  gains  made  on  the  sea- 
shores, or  the  possible  subsistence  of  many  million.  If  it 
should  prove  possible  to  till  the  middle  and  lower  reaches 
of  the  great  rivers  which  flow  toward  the  Arctic  Ocean,  the 
Mackenzie  in  North  America,  and  the  several  streams  that 
traverse  Siberia,  the  aggregate  area  of  useful  alluvial  land 
may  be  much  greater  than  is  indicated  by  this  reckoning. 

How  glacial  lakes  were  formed.     The  true  morasses,  those 


LAND  FROM  THE  WATERS  97 

inundate'd  fields  lying  outside  the  alluvial  fields,  are  much  more 
abundant  than  the  winnable  flooded  ground  beside  the  rivers. 
The  most  common  of  this  group  are  the  bogs  formed  in  the 
lakes  which  gathered  in  the  shallow  pits  that  were  shaped  by 
the  irregular  disposition  of  the  drift  left  on  the  surface  of 
those  areas  occupied  by  the  ice  in  the  last  glacial  period. 
When  that  covering  melted  away  these  basins  so  placed  as  to 
hold  water  were  almost  incredibly  numerous.  Thus,  in  New 
England,  when  the  earth  was  cleared  of  the  glaciers,  the 
number  of  them  varying  in  size  from  areas  of  an  acre  to  those 
one  hundred  square  miles  in  extent  were  to  be  numbered  by, 
the  tens  of  thousands.  The  writer  has  estimated  that  not  less 
than  ten  per  cent,  of  this  district  was  thus  covered  with  tarns 
or  lakes.  Taking  the  glaciated  parts  of  the  world  as  a  whole, 
the  disturbance  of  the  drainage  induced  by  the  ice  invasion 
probably  brought  about  something  like  this  proportion  of 
inundated  lands  where  in  the  earlier  times  the  brooks  and 
rivers  had  in  their  usual  manner  provided  a  complete  drain- 
age. 

Growth  of  peat  bogs.  'As  soon  as  the  glacial  sheet  had 
disappeared  and  the  basins  held  in  its  debris  were  filled  by; 
water,  a  process  of  closing  them  began,  a  process  which  has 
been  continued  to  our  own  day.  Along  the  shores  of  each 
of  those  lakes  where  the  waves  did  not  have  too  much  power 
to  admit  of  such  growth,  a  species  of  moss  known  as  sphagnum, 
the  form  familiar  in  almost  any  swamp,  found  a  foothold. 
The  microscopic  spores  of  this  plant  are  readily  borne  by  the 
wind  for  many  miles  from  their  parent  stations,  so  that  as 
fast  as  the  pools  were  formed,  the  growth  began,  and  as  the 
ice  sheet  retreated  the  mosses  were  always  ready  to  set  about 
their  peculiar  work.  Their  task  is,  indeed,  one  of  the  most 
extensive  and  important  of  those  performed  by  vegetable  life. 
It  is  as  follows : 

Beginning  with  a  delicate  mat  formed  of  the  intermeshed 
fronds,  the  sphagnum  mosses  quickly  form  a  shelf  of  their 
living  and  dead  parts  which  extends  outwardly  from  the  shore, 


98  LAND  FROM  THE  WATERS 

and  increases  in  depth  until  it  may  be  some  feet  in  thickness ; 
next  the  shore  it  rests  upon  the  bottom,  but  in  deeper  water 
it  floats  with  its  surface  a  foot  or  so  above  the  water.  From 
the  lower  margin  of  this  raft  of  moss  the  dead  parts  of 
the  plants  fall  upon  the  bottom  and  by  their  decay  from  the 
familiar  black  mud  or  soft  peat  which  often  gathers  to  the 
depth  of  twenty  or  thirty  feet.  Given  time — and  in  a  geolog- 
ical sense  no  long  period  is  required — and  a  lake  a  mile  or 
two  in  diameter  will  be  closed  over  and  solidly  filled  with  the 
muck  deposit.  Only  when  the  lake  is  of  such  area  that  heavy 
waves  may  form  on  it,  which  serve  to  break  up  the  advancing 
mat  of  vegetation,  is  it  preserved  from  this  agent  of  oblitera- 
tion. The  result  is  that  by  far  the  greater  number  of  the 
glacial  lakes  formed  in  New  England  when  the  ice  of  the 
last  glacial  period  disappeared  have  been  converted  into  peat 
bogs ;  probably  more  than  nine-tenths  of  them  have  been  thus 
closed.  Further  to  the  northward,  where  the  ice  went  off  in 
more  recent  times,  than  near  its  border,  the  process  of  occlud- 
ing the  glacial  lakes  is  naturally  less  advanced  than  in  New 
England.  In  these  we  more  often  find  " quaking  bogs,"  i.e., 
instances  in  which  the  sheet  has  closed  over  the  lake,  but 
where  the  deposit  formed  on  the  bottom  has  not  been  built 
up  to  where  it  supports  the  mat  so  that  the  peat-making 
process  is  complete. 

Upland  or  climbing  bogs.  The  foregoing  sketch  of  the  his- 
tory of  peat  morasses  formed  in  lakes  needs  to  be  supple- 
mented by  an  account  of  another  method  of  their  develop- 
ment, which  in  many  parts  of  the  world  where  the  air  is 
moist  and  cool  gives  rise  to  even  more  extensive  deposits 
— those  known  as  upland  or  climbing  bogs.  In  this  group 
the  sphagnum  begins  its  growth  on  the  margin  of  any  pool 
and  extends  its  sheet  away  from  the  water  so  that  it  mounts 
slopes  of  considerable  steepness,  sometimes  ascending  to 
heights  of  a  hundred  feet  or  more  in  an  advance  of  a  mile. 
As  it  grows  in  thickness,  the  lower  part  of  the  mat  dies  and 
so  forms  an  ever-increasing  mass  of  soft  peat  on  which  the 


LAND  FROM  THE  WATERS  99 

living  tangle  rests,  holding,  as  in  a  sponge,  the  water  needed 
for  its  growth.  So  effectively  does  it  do  this  that  in  times 
of  heavy  rain  the  bog  swells  up  and  occasionally  it  bursts, 
discharging  a  tide  of  black  mud  which  flows  like  a  lava  stream, 
in  many  instances  carrying  widespread  destruction  to  farms 
and  villages  in  the  valleys  through  which  it  flows. 

In  effect  the  fields  covered  by  climbing  bogs  are  limited 
to  regions  north  and  south  of  the  parallels  of  40°  in  either  hem- 
isphere, for  there  alone  do  we  find  the  relatively  low  tempera- 
ture and  the  high  measure  of  humidity  needed  for  their 
development.  They  originally  mantled  a  considerable  part 
of  the  land  now  tilled  in  the  northern  part  of  Great  Britain, 
nearly  all  of  the  lower  ground  in  Ireland,  and  much  of  the 
most  fertile  portion  of  Germany  and  Scandinavia,  about  the 
shores  of  the  North  Sea  and  the  Baltic.  They  still  exist  in 
vast  development  in  Northern  Eussia  and  Siberia,  in  Patagonia, 
and  in  Canada.  South  of  Canada,  they  are  so  scantily  de- 
veloped as  to  have  no  interest  from  our  point  of  view.  In 
Africa  and  Australia  they  find  no  place  because  of  the  high 
temperature  or  the  dryness  of  the  air,  both  of  which  con- 
ditions prevent  the  growth  of  the  bog-making  mosses. 

Area  reclaimable  from  bogs.  It  is  not  easy  to  estimate 
the  amount  of  tillable  soil  which  can  be  won  from  the  fields 
now  possessed  by  moss  bogs ;  it  may  be  taken  as  probable  that 
the  aggregate  area  exceeds  300,000  square  miles;  it  being, 
perhaps,  the  largest  part  of  the  earth's  surface  which  can  be 
won  from  the  covering  of  water.  Should  it  prove  possible 
to  develop  tillage  in  any  considerable  part  of  the  tundra  of 
Siberia  the  total  may  much  exceed  that  amount;  it  may  on 
those  conditions  rise  to  near  half  a  million  square  miles. 

As  for  the  quality  of  the  soil  obtained  from  these  peat- 
covered  fields,  experience  shows  that,  though  variable,  it  is 
good  for  a  wide  range  of  uses.  The  fields  whence  the  climbing 
bogs  have  been  stripped  are  of  great  and  enduring  fertility. 
The  level  bogs  of  the  deposits  which  have  filled  lakes  have  a 
different  character;  they  cannot  so  readily  be  brought  to 


100  LAND  FROM  THE  WATERS 

tillage.  In  fact,  it  is  commonly  necessary  to  strip  the  mat 
of  living  sphagnum  off  and  then  to  cover  the  surface  with  sand 
or  mix  the  upper  part  with  ordinary  earth.  Thus  treated  the 
ground  becomes  well  suited  to  a  great  range  of  important 
plants,  especially  those  reared  in  market  gardens.  The  in- 
teresting industry  of  cranberry  growing  is  one  of  those  forms 
of  tillage  in  which  the  peat  soil  is  turned  to  account.  In  fact 
this  species  of  plant  will  not  commercially  develop  in  any 
other  conditions  save  those  of  drained  swamps. 

Area  reclaimable  from  lakes.  One  of  the  largest  bodies  of 
unwon  yet  winnable  lands  is  that  now  covered  by  the  waters 
of  lakes.  Their  drainable  areas  are  very  numerous,  especially 
so  in  glaciated  districts  in  the  part  of  North  America  recently 
occupied  by  the  ice-fields.  Their  basins  are  to  be  reckoned 
by  the  tens  of  thousands,  and  their  aggregate  area  is  prob- 
ably not  less  than  fifteen  per  cent,  of  the  field  in  which  they 
lie.  The  greater  number  of  them,  though  probably  not  half 
of  the  total  surface,  are  to  be,  in  whole  or  in  part,  drained 
and  brought  under  tillage  as  soon  as  population  begins  to 
press  upon  means  of  subsistence.  The  ground  thus  made 
available  for  tillage  is  likely  in  North  America  to  amount 
to  not  less  than  twenty  thousand  square  miles. 

The  quality  of  the  soil  to  be  won  by  the  drainage  of  lakes 
will  in  most  instances  be  excellent.  These  areas  of  water, 
though  in  practically  all  instances  of  geologically  recent 
origin,  have  been  long  enough  in  existence  to  have  enriched 
their  bottoms  with  deposits  of  lime  phosphate  and  other  ma- 
terials favorable  to  the  growth  of  plants.  The  soils  drained 
from  these  accumulations  will  be  prevailingly  clayey  and 
rather  heavy,  but  very  little  enduring  to  tillage  and  of  far 
more  than  average  fertility.  They  may  be  reckoned  on  to 
afford  fields  as  well  suited  to  agriculture  as  the  heavy  land 
of  Northern  Ohio,  Indiana,  and  Illinois,  where  much  of  the 
surface  took  on  its  character  below  the  former  extension  of 
the  neighboring  Great  Lakes. 

Lakes  other  than  glacial.    Although  the  greater  number 


LAND  FROM  THE  WATERS  101 

of  drainable  lakes  and  the  largest  aggregate  area  of  them 
lie  in  the  glaciated  districts,  there  are  many  such  in  parts 
of  the  world  where  the  ice-sheets  have  not  shaped  the  sur- 
face. Other  fresh-water  basins  are  among  the  results  of 
mountain-building  actions  which  have  lowered  considerable 
areas,  forming  such  lakes  as  the  Dead  Sea  of  Judea,  or  the 
extensive  lakes  of  the  upper  Nile.  Many  of  these  basins 
are  so  deep,  their  bottoms  often  lying  below  the  sea-level,  that 
complete  drainage  is  impossible  in  many,  if  not  most  in- 
stances. However,  the  conditions  often  make  it  possible  to 
lower  the  surface  of  the  water  to  such  an  extent  that  large 
fields  of  good  land  may  be  won. 

As  a  whole,  the  lake  beds  may  be  reckoned  on  as  likely  to 
afford,  in  the  ages  when  the  earth  is  crowded  with  men,  a 
resource  in  the  way  of  tillable  lands  in  area  comparable  to 
that  which  may  be  had  from  the  deserts,  the  morasses,  and  the 
shallow  fringes  of  the  sea. 


CONSERVATION  OF  NATIONAL  RESOURCES 

[THE  President  of  the  United  States  created  June  8,  1908,  a  Na- 
tional Conservation  Commission  of  five  members,  with  Gifford  Pinchot 
as  chairman,  to  inquire  into  the  condition  of  the  national  resources.  The 
final  report  of  the  Commission,  made  December  7,  1908,  was  a  brief 
summary  in  about  fourteen  pages  of  the  large  body  of  information 
collected.  The  report  was  submitted  to  a  Joint  Conservation  Con- 
ference meeting  in  Washington,  December  10,  1908,  and  made  up  of 
governors  of  States,  State  Conservation  Commissions,  and  representa- 
tives of  numerous  scientific  and  civic  organizations.  The  Conference  hav- 
ing heard  the  report  and  "having  fully  deliberated  thereon,"  indorsed 
it  "as  a  wise,  just,  and  patriotic  statement  of  the  resources  of  the 
nation,  of  the  thoughtless  and  profligate  manner  in  which  some  of  these 
resources  have  been  and  are  being  wasted,  and  of  the  urgent  need  for 
their  conservation  in  the  interests  of  this  and  future  generations,  to 
the  end  that  the  prosperity  and  perpetuity  of  the  nation  may  be  as- 
sured." 

The  report  opens  with  a  general  statement  of  the  causes  arousing 
public  interest  in  the  subject.  Omitting  this  and  a  number  of  the 
recommendations  of  legislation  contained  in  the  report,  the  following 
extract  reproduces  almost  entire  the  remarkably  compact  statement  of 
facts  regarding  our  national  resources  at  the  time  of  the  report.  The 
complete  report  accompanied  by  Proceedings  of  the  Joint  Conservation 
Conference,  and  by  numerous  scientific  papers  (in  all  nearly  1800 
pages)  was  published  as  Senate  Document  676,  for  the  60th  Congress, 
2d  session,  Vols.  10,  11,  12.] 

Minerals.  The  mineral  production  of  the  United  States  for 
1907  exceeded  $2,000,000,000,  and  contributed  65  per  cent,  of 
the  total  freight  traffic  of  the  country.  The  waste  in  the 
extraction  and  treatment  of  mineral  products  during  the  same 
year  was  equivalent  to  more  than  $300,000,000. 

The  production  for  1907  included  395,000,000  tons  of  bi- 
tuminous and  85,000,000  tons  of  anthracite  coal,  166,000,000 
barrels  of  petroleum,  52,000,000  tons  of  iron  ore,  2,500,000 

102 


CONSERVATION  OF  RESOURCES          103 

tons  of  phosphate  rock,  and  869,000,000  pounds  of  copper. 
The  values  of  other  mineral  products  during  the  same  year 
included  clay  products,  $162,000,000;  stone,  $71,000,000; 
cement,  $56,000,000 ;  natural  gas,  $53,000,000 ;  gold,  $90,000,- 
000;  silver,  $37,000,000;  lead  $39,000,000;  and  zinc,  $26,000,- 
000. 

The  available  and  easily  accessible  supplies  of  coal  in 
the  United  States  aggregate  approximately  1,400,000,000,000 
tons.  At  the  present  increasing  rate  of  production  this  sup- 
ply will  be  so  depleted  as  to  approach  exhaustion  before  the 
middle  of  the  next  century. 

The  known  supply  of  high-grade  iron  ores  in  the  United 
States  approximates  4,788,150,000  tons,  which  at  the  present 
increasing  rate  of  consumption  can  not  be  expected  to  last 
beyond  the  middle  of  the  present  century.  In  addition  to 
this,  there  are  assumed  to  be  75,116,070,000  tons  of  lower 
grade  iron  ores  which  are  not  available  for  use  under  exist- 
ing conditions. 

The  supply  of  stone,  clay,  cement,  lime,  sand,  and  salt 
is  ample,  while  the  stock  of  the  precious  metals  and  of  copper, 
lead,  zinc,  sulphur,  asphalt,  graphite,  quicksilver,  mica,  and 
the  rare  metals  can  not  well  be  estimated,  but  is  clearly 
exhaustible  within  one  to  three  centuries  unless  unexpected 
deposits  be  found. 

The  known  supply  of  petroleum  is  estimated  at  fifteen  billion 
to  twenty  billion  barrels,  distributed  through  six  separate 
fields  having  an  aggregate  area  of  8,900  square  miles.  The 
production  is  rapidly  increasing,  while  the  wastes  and  the 
loss  through  misuse  are  enormous.  The  supply  cannot  be 
expected  to  last  beyond  the  middle  of  the  present  century. 

The  known  natural-gas  fields  aggregate  an  area  of  9,000 
square  miles,  distributed  through  twenty-two  States.  Of  the 
total  yield  from  these  fields  during  1907,  400,000,000,000  cubic 
feet,  valued  at  $62,000,000,  were  utilized,  while  an  equal 
quantity  was  allowed  to  escape  into  the  air.  The  daily  waste 
of  natural  gas — the  most  perfect  known  fuel — is  over  1,000,- 


104  CONSERVATION  OF  RESOURCES 

000,000  cubic  feet,  or  enough  to  supply  every  city  in  thei 
United  States  of  over  100,000  population. 

Phosphate  rock,  used  for  fertilizer,  represents  the  slow 
accumulation  of  organic  matter  during  past  ages.  In  most 
countries  it  is  most  scrupulously  preserved;  in  this  country 
it  is  extensively  exported,  and  largely  for  this  reason  its 
production  is  increasing  rapidly.  The  original  supply  cannot 
long  withstand  the  increasing  demand. 

The  consumption  of  nearly  all  our  mineral  products  is 
increasing  far  more  rapidly  than  our  population.  In  many 
cases  the  waste  is  increasing  more  rapidly  than  the  number 
of  our  people.  In  1776  but  a  few  dozen  pounds  of  iron  ore 
were  in  use  by  the  average  family ;  now  our  annual  consump- 
tion of  high-grade  ore  is  over  1,200  pounds  per  capita.  In 
1812  no  coal  was  used ;  now  the  consumption  is  over  five  tons 
and  the  waste  nearly  three  tons  per  capita. 

While  the  production  is  increasing  enormously,  the  waste 
and  loss  in  mining  are  diminishing.  At  the  beginning  of  our 
mineral  development  the  coal  abandoned  in  the  mine  was  two 
or  three  times  the  amount  taken  out  and  used.  Now  the  mine 
waste  averages  little  more  than  half  the  amount  saved.  The 
chief  waste  is  in  imperfect  combustion  in  furnaces  and  fire 
boxes.  Steam  engines  utilize  on  the  average  about  8  per  cent, 
of  the  thermal  energy  of  the  coal.  Internal  combustion  en- 
gines utilize  less  than  20  per  cent.,  and  in  electric  lighting  far 
less  than  1  per  cent,  of  the  thermal  energy  is  rendered  avail- 
able. 

With  increasing  industries  new  mineral  resources  become 
available  from  time  to  time.  Some  lignites  and  other  low- 
grade  coals  are  readily  gasified  and,  through  the  develop- 
ment of  internal-combustion  engines,  may  be  made  to  check 
the  consumption  of  high-grade  coals. 

Peat  is  becoming  important ;  it  is  estimated  that  14,000,000,- 
000  tons  are  available  in  the  United  States.  Its  value  is  en- 
hanced because  of  distribution  through  States  generally 
remote  from  the  fields  of  coal,  oil,  and  natural  gas. 


CONSERVATION  OF  RESOURCES  105 

The  uses  of  all  our  mineral  resources  are  interdependent. 
This  is  especially  true  of  coal  and  iron,  of  which  neither 
can  be  produced  or  used  without  aid  from  the  other,  and  in 
the  production  or  reduction  of  all  other  minerals  both  coal 
and  iron  are  employed.  The  same  standard  minerals  are 
necessary  to  the  development  of  power,  of  which  the  use  is 
increasing  more  rapidly  than  that  of  any  other  commodity. 

The  building  operations  of  the  country  now  aggregate  about 
$1,000,000,000  per  year.  The  direct  and  indirect  losses  from 
fire  in  the  United  States  during  1907  approximated  $450,000,- 
000,  or  one-half  the  cost  of  construction.  Of  this  loss  four- 
fifths,  or  an  average  of  $1,000.000  per  day,  could  be  prevented, 
as  shown  by  comparison  with  the  standards  of  construction 
and  fire  losses  in  the  larger  European  countries. 

So  far  as  the  ores  are  taken  from  the  mines  and  reduced  to 
metals,  these  resources  are  capitalized;  but  after  thus  being 
changed  to  a  more  valuable  form  they  should  be  so  used  as  to 
reduce  to  a  minimum  the  loss  by  rust,  electrolytic  action, 
and  other  wastes.  .  .  . 

While  the  distribution  and  quantity  of  most  of  our  im- 
portant mineral  substances  are  known  in  a  general  way,  there 
is  imperative  need  for  further  surveys  and  investigations 
and  for  researches  concerning  the  less-known  minerals. 

Lands.  The  total  land  area  of  continental  United  States 
is  1,920,000,000  acres.  Of  this  but  little  more  than  two- 
fifths  is  in  farms,  and  less  than  one-half  of  the  farm  area  is  im- 
proved and  made  a  source  of  crop  production.  We  have 
nearly  6,000.000  farms;  they  average  146  acres  each.  The 
value  of  the  farms  is  nearly  one-fourth  the  wealth  of  the 
United  States.  There  are  more  than  300,000,000  acres  of 
public  grazing  land.  The  number  of  persons  engaged  in 
agricultural  pursuits  is  more  than  10,000.000.  .  .  . 

There  has  been  a  slight  increase  in  the  average  yield  of 
our  great  staple  farm  products,  but  neither  the  increase  in 
acreage  nor  the  yield  per  acre  has  kept  pace  with  our  increase 
in  population.  Within  a  century  we  shall  probably  have  to 


106  CONSERVATION  OF  RESOURCES 

feed  three  times  as  many  people  as  now;  and  the  main  bulk 
of  our  food  must  be  grown  on  our  own  soil. 

The  area  of  cultivated  land  may  possibly  be  doubled.  In 
addition  to  the  land  awaiting  the  plow,  75,000,000  acres  of 
swamp  land  can  be  reclaimed,  40,000,000  acres  of  desert  land 
irrigated,  and  millions  of  acres  of  brush  and  wooded  land 
cleared.  Our  population  will  increase  continuously,  but  there 
is  a  definite  limit  to  the  increase  of  our  cultivated  acreage. 
Hence  we  must  greatly  increase  the  yield  per  acre.  The  av- 
erage yield  of  wheat  in  the  United  States  is  less  than  14  bushels 
per  acre,  in  Germany  28  bushels,  and  in  England  32  bushels. 
We  get  30  bushels  of  oats  per  acre,  England  nearly  45,  and 
Germany  more  than  47.  Our  soils  are  fertile,  but  our  mode 
of  farming  neither  conserves  the  soil  nor  secures  full  crop 
returns.  Soil  fertility  need  not  be  diminished,  but  may  be  in- 
creased. The  large  yields  now  obtained  from  farms  in  Eu- 
rope which  have  been  cultivated  for  a  thousand  years  prove 
this  conclusively.  Proper  management  will  double  our  av- 
erage yield  per  acre.  The  United  States  can  grow  the  farm 
products  needed  by  a  population  more  than  three  times  as 
great  as  our  country  now  contains. 

The  greatest  unnecessary  loss  of  our  soil  is  preventable 
erosion.  Second  only  to  this  is  the  waste,  nonuse,  and  misuse 
of  fertilizer  derived  from  animals  and  men. 

The  losses  to  farm  products  due  to  injurious  mammals  is 
estimated  at  $130,000,000  annually;  the  loss  through  plant 
diseases  reaches  several  hundred  million  dollars ;  and  the  loss 
through  insects  is  reckoned  at  $659,000,000.  The  damage  by 
birds  is  balanced  by  their  beneficent  work  in  destroying  nox- 
ious insects.  Losses  due  to  the  elements  are  large,  but  no 
estimate  has  been  made  of  them.  Losses  to  live  stock  from 
these  causes  are  diminishing  because  of  protection  and  feeding 
during  winter.  The  annual  losses  from  disease  among  do- 
mestic animals  are:  Horses,  1.8  per  cent;  cattle  2  per  cent.; 
sheep,  2.2  per  cent.,  and  swine,  5.1  per  cent.  Most  of  these 
farm  losses  are  preventable. 


CONSERVATION  OF  RESOURCES          107 

There  is  a  tendency  toward  consolidation  of  farm  lands. 
The  estimated  area  of  abandoned  farms  is  16,000  square  miles, 
or  about  3  per  cent,  of  the  improved  land.  The  causes  of 
abandonment  differ  in  different  parts  of  the  country.  Where 
most  prevalent,  it  is  caused  principally  by  erosion  and  ex- 
haustion of  the  soil. 

The  product  of  the  fisheries  of  the  United  States  has  an  an- 
nual value  of  $57,000,000.  Fish  culture  is  carried  on  by  the 
nation  and  the  States  on  an  enormous  scale.  Most  of  the  more 
important  food  species  are  propagated,  and  several  species  are 
maintained  in  that  way.  Fish  from  forest  waters  furnish 
$21,000,000  worth  of  food  yearly,  a  supply  dependent  on  the 
preservation  of  the  forests. 

Our  wild  game  and  fur-bearing  animals  have  been  largely 
exterminated.  To  prevent  their  complete  extinction  the 
States  and  the  United  States  have  taken  in  hand  their  protec- 
tion, and  their  numbers  are  now  increasing.  Forest  game 
yields  over  $10,000,000  worth  of  food  each  year. 

With  game  birds  the  story  is  much  the  same — wanton  de- 
struction until  the  number  has  been  greatly  reduced,  followed 
in  recent  years  by  wise  protection,  which  in  some  cases  allows 
the  remnant  to  survive  and  even  to  increase. 

Each  citizen  of  the  United  States  owns  an  equal  undivided 
interest  in  about  387,000,000  acres  of  public  lands,  exclusive 
of  Alaska  and  the  insular  possessions.  Besides  this  there  are 
about  235,000,000  acres  of  national  forests,  national  parks,  and 
other  lands  devoted  to  public  use.  .  .  . 

Forests.  Next  to  our  need  of  food  and  water  comes  our 
need  of  timber. 

Our  industries  which  subsist  wholly  or  mainly  upon  wood 
pay  the  wages  of  more  than  1,500,000  men  and  women. 

Forests  not  only  grow  timber,  but  they  hold  the  soil  and 
they  conserve  the  streams.  They  abate  the  wind  and  give 
protection  from  excessive  heat  and  cold.  Woodlands  make  for 
the  fiber,  health,  and  happiness  of  the  citizen  and  the  nation. 

Our  forests  now  cover  550,000,000  acres,  or  about  one-fourth 


108  CONSERVATION  OF  RESOURCES 

of  the  United  States.  The  original  forests  covered  not  less 
than  850,000,000  acres. 

Forests  publicly  owned  contain  one-fifth  of  all  our  standing 
timber.  Forests  privately  owned  contain  four-fifths  of  the 
standing  timber.  The  timber  privately  owned  is  not  only 
four  times  that  publicly  owned,  but  is  generally  more  valuable. 

Forestry  is  now  practised  on  70  per  cent,  of  the  forests 
publicly  owned  and  on  less  than  1  per  cent,  of  the  forests 
privately  owned,  or  on  only  18  per  cent,  of  the  total  area  of 
forests. 

The  yearly  growth  of  wood  in  our  forests  does  not  average 
more  than  12  cubic  feet  per  acre.  This  gives  a  total  yearly 
growth  of  less  than  7,000,000,000  cubic  feet. 

We  have  200,000,000  acres  of  mature  forests,  in  which  yearly 
growth  is  balanced  by  decay;  250,000,000  acres  partly  cut 
over  or  burned  over,  but  restocking  naturally  with  enough 
young  growth  to  produce  a  merchantable  crop,  and  100,000,000 
acres  cut  over  and  burned  over,  upon  which  young  growth  is 
lacking  or  too  scanty  to  make  merchantable  timber. 

We  take  from  our  forests  yearly,  including  waste  in  logging, 
and  in  manufacturing,  23,000,000,000  cubic  feet  of  wood.  .  .  . 

Since  1870  forest  fires  have  destroyed  a  yearly  average  of 
fifty  lives  and  $50,000,000  worth  of  timber.  Not  less  than  50,- 
000,000  acres  of  forest  is  burned  over  yearly.  The  young 
growth  destroyed  by  fire  is  worth  far  more  than  the  merchant- 
able timber  burned. 

One-fourth  of  the  standing  timber  is  lost  in  logging.  The 
boxing  of  long-leaf  pine  for  turpentine  has  destroyed  one-fifth 
of  the  forests  worked.  The  loss  in  the  mill  is  from  one-third 
to  two-thirds  of  the  timber  sawed.  The  loss  of  mill  product  in 
seasoning  and  fitting  for  use  is  from  one-seventh  to  one-fourth. 

Of  each  1,000  feet  which  stood  in  the  forest,  an  average 
of  only  320  feet  of  lumber  is  used. 

We  take  from  our  forests  each  year,  not  counting  the  loss 
by  fire,  three  and  a  half  times  their  yearly  growth.  We  take 
40  cubic  feet  per  acre  for  each  12  cubic  feet  grown;  we  take 


CONSERVATION  OF  RESOURCES  109 

260  cubic  feet  per  capita,  while  Germany  uses  37  and  France 
25  cubic  feet. 

We  tax  our  forests  under  the  general  property  tax,  a  method 
abandoned  long  ago  by  every  other  great  nation.  Present  tax 
laws  prevent  reforestation  of  cut-over  land  and  the  perpetua- 
tion of  existing  forests  by  use. 

Great  damage  is  done  to  standing  timber  by  injurious  in- 
sects. Much  of  this  damage  can  be  prevented  at  small  ex- 
pense. 

To  protect  our  farms  from  wind  and  to  reforest  land  best 
suited  for  forest  growth  will  require  tree  planting  on  an  area 
larger  than  Pennsylvania,  Ohio,  and  West  Virginia  combined. 
Lands  so  far  successfully  planted  make  a  total  area  smaller 
than  Rhode  Island ;  and  year  by  year,  through  careless  cutting 
and  fires,  we  lower  the  capacity  of  existing  forests  to  produce 
their  like  again,  or  else  totally  destroy  them. 

In  spite  of  substitutes  we  shall  always  need  much  wood.  So 
far  our  use  of  it  has  steadily  increased.  The  condition  of  the 
world's  supply  of  timber  makes  us  already  dependent  upon 
what  we  produce.  We  send  out  of  our  country  one  and  a  half 
times  as  much  timber  as  we  bring  in.  Except  for  finishing 
woods,  relatively  small  in  amount,  we  must  grow  our  own 
supply  or  go  without.  Until  we  pay  for  our  lumber  what  it 
costs  to  grow  it,  as  well  as  what  it  costs  to  log  and  saw,  the 
price  will  continue  to  rise. 

The  preservation  by  use,  under  the  methods  of  practical 
forestry,  of  all  public  forest  lands,  either  in  State  or  federal 
ownership,  is  essential  to  the  permanent  public  welfare.  In 
many  forest  States  the  acquirement  of  additional  forest  lands 
as  State  forests  is  necessary  to  the  best  interests  of  the  States 
themselves. 

The  conservation  of  our  mountain  forests,  as  in  the  Appa- 
lachian system,  is  a  national  necessity.  These  forests  are  re- 
quired to  aid  in  the  regulation  of  streams  used  for  naviga- 
tion and  other  purposes.  The  conservation  of  these  forests  is 
impracticable  through  private  enterprise  alone,  by  any  State 


110  CONSERVATION  OF  RESOURCES 

alone,  or  by  the  Federal  Government  alone.  Effective  and 
immediate  cooperation  between  these  three  agencies  is  es- 
sential. Federal  ownership  of  limited  protective  areas  upon 
important  watersheds,  effective  State  fire  patrol,  and  the  co- 
operation of  private  forest  owners  are  all  required. 

The  true  remedy  for  unwise  tax  laws  lies  not  in  laxity  in 
their  application  nor  in  special  exemptions,  but  in  change  in 
the  method  of  taxation.  An  annual  tax  upon  the  land  itself 
exclusive  of  the  value  of  the  timber,  and  a  tax  upon  the  timber 
when  cut,  is  well  adapted  to  actual  conditions  of  forest  in- 
vestment, and  is  practicable  and  certain.  It  is  far  better  that 
forest  land  should  pay  a  moderate  tax  permanently  than  that 
it  should  pay  an  excessive  revenue  temporarily  and  then  cease 
to  pay  at  all. 

Forests  in  private  ownership  can  not  be  preserved  unless 
they  are  protected  from  fire.  We  need  good  fire  laws,  well 
enforced.  Fire  control  is  impossible  without  an  adequate 
force  of  men  whose  sole  duty  is  fire  patrol  during  the  danger- 
ous season. 

The  conservative  use  of  the  forest  and  of  timber  by  Ameri- 
can citizens  will  not  be  general  until  they  learn  how  to  practise 
forestry.  Through  a  vigorous  national  campaign  in  educa- 
tion, forestry  has  taken  root  in  the  great  body  of  American 
citizenship.  The  basis  already  exists  upon  which  to  build 
a  structure  of  forest  conservation  which  will  endure.  This 
needs  the  definite  commitment  of  State  governments  and  the 
Federal  Government  to  their  inherent  duty  of  teaching  the 
people  how  to  care  for  their  forests.  The  final  responsibility, 
both  for  investigative  work  in  forestry  and  for  making  its  re- 
sults known,  rests  upon  the  States  and  upon  the  nation. 

By  reasonable  thrift,  we  can  produce  a  constant  timber  sup- 
ply beyond  our  present  need,  and  with  it  conserve  the  useful- 
ness of  our  streams  for  irrigation,  water  supply,  navigation, 
and  power. 

Under  right  management  our  forests  will  yield  over  four 
times  as  much  as  now.  "We  can  reduce  waste  in  the  woods  and 


CONSERVATION  OF  RESOURCES  111 

in  the  mill  at  least  one-third,  with  present  as  well  as  future 
profit.  We  can  perpetuate  the  naval-stores  industry.  Pre- 
servative treatment  will  reduce  by  one-fifth  the  quantity  of 
timber  used  in  the  water  or  in  the  ground.  We  can  practi- 
cally stop  forest  fires  at  a  cost  yearly  of  one-fifth  the  value  of 
the  merchantable  timber  burned. 

We  shall  suffer  for  timber  to  meet  our  needs  until  our 
forests  have  had  time  to  grow  again.  But  if  we  act  vigorously 
and  at  once  we  shall  escape  permanent  timber  scarcity. 

Waters.  The  sole  source  of  our  fresh  water  is  rainfall, 
including  snow.  From  this  source  all  running,  standing,  and 
ground  waters  are  derived.  The  habitability  of  the  country 
depends  on  these  waters.  Our  mean  annual  rainfall  is  about 
thirty  inches;  the  quantity  about  215  trillion  cubic  feet  per 
year,  equivalent  to  ten  Mississippi  rivers. 

Of  the  total  rainfall,  over  half  is  evaporated ;  about  a  third 
flows  into  the  sea;  the  remaining  sixth  is  either  consumed  or 
absorbed.  These  portions  are  sometimes  called,  respectively, 
the  fly-off,  the  run-off  and  the  cut-off.  They  are  partly  inter- 
changeable. About  a  third  of  the  run-off  or  a  tenth  of  the 
entire  rainfall,  passes  through  the  Mississippi.  The  run-off 
is  increasing  with  deforestation  and  cultivation. 

Of  the  70  trillion  cubic  feet  annually  flowing  into  the  sea, 
less  than  1  per  cent,  is  retained  and  utilized  for  municipal 
and  community  supply;  less  than  2  per  cent,  (or  some  10  per 
cent,  of  that  in  the  arid  and  semiarid  regions)  is  used  for  ir- 
rigation; perhaps  5  per  cent,  is  used  for  navigation,  and  less 
than  5  per  cent,  for  power. 

For  municipal  and  community  water  supply  there  are  pro- 
tected catchment  areas  aggregating  over  1,000,000  acres,  and 
over  $250,000,000  are  invested  in  waterworks,  with  nearly  as 
much  more  in  the  appurtenant  catchment  areas  and  other 
lands.  The  population  so  supplied  approaches  10,000,000,  and 
the  annual  consumption  is  about  37,500,000,000  cubic  feet. 
The  better  managed  systems  protect  the  catchment  areas  by 
forests  and  grass ;  the  water  is  controlled  and  the  storm  prod- 


112  CONSERVATION  OF  RESOURCES 

uct  used,  but  there  is  large  waste  after  the  water  enters  the 
mains. 

For  irrigation  it  is  estimated  that  there  are  $200,000,000  in- 
vested in  dams,  ditches,  reservoirs,  and  other  works  for  the 
partial  control  of  the  waters,  and  that  1,500  billion  cubic  feet 
are  annually  diverted  to  irrigable  lands,  aggregating  some 
20,000  square  miles.  Except  in  some  cases  through  forestry, 
few  catchment  areas  are  controlled,  and  few  reservoirs  are 
large  enough  to  hold  the  storm  waters.  The  waste  in  the  pub- 
lic and  private  projects  exceeds  60  per  cent.,  while  no  more 
than  25  per  cent,  of  the  water  actually  available  for  irriga- 
tion of  the  arid  lands  is  restrained  and  diverted. 

There  are  in  continental  United  States  287  streams  navi- 
gated for  an  aggregate  of  26,226  miles,  and  as  much  more 
navigable  if  improved.  There  are  also  45  canals,  aggregating 
2.189  miles,  besides  numerous  abandoned  canals.  Except 
through  forestry  in  recent  years,  together  with  a  few  reservoirs 
and  canal  locks  and  movable  dams,  there  has  been  little  ef- 
fort to  control  headwaters  or  catchment  areas  in  the  interests 
of  navigation,  and  none  of  our  rivers  are  navigated  to  more 
than  a  small  fraction  even  of  their  effective  low-water 
capacity. 

The  water  power  now  in  use  is  5.250,000  horse-power;  the 
amount  running  over  government  dams  and  not  used  is  about 
1,400,00  horse-power;  the  amount  reasonably  available  equals 
or  exceeds  the  entire  mechanical  power  now  in  use,  or  enough 
to  operate  every  mill,  drive  every  spindle,  propel  every  train 
and  boat,  and  light  every  city,  town,  and  village  in  the  coun- 
try. While  the  utilization  of  water  power  ranks  among  our 
most  recent  and  most  rapid  industrial  developments,  little  ef- 
fort has  been  made  to  control  catchment  areas  or  storm  waters 
in  any  large  way  for  power,  though  most  plants  effect  local 
control  through  reservoirs  and  other  works.  Nearly  all  the 
freshet  and  flood  water  runs  to  waste,  and  the  low  waters 
which  limit  the  efficiency  of  power  plants  are  increasing  in 
frequency  and  duration  with  the  increasing  flood  run-off, 


CONSERVATION  OF  RESOURCES  113 

The  practical  utility  of  streams  for  both  navigation  and 
power  is  measured  by  the  effective  low-water  stage.  The 
volume  carried  when  the  streams  rise  above  this  stage  is 
largely  wasted  and  often  does  serious  damage.  The  direct 
yearly  damage  by  floods  since  1900  has  increased  steadily  from 
$45,000,000  to  over  $238,000,000.  The  indirect  loss  through 
depreciation  of  property  is  great,  while  a  large  loss  arises  in 
impeded  traffic  through  navigation  and  terminal  transfers. 

The  freshets  are  attended  by  destructive  soil  erosion.  The 
soil  matter  annually  carried  into  lower  rivers  and  harbors 
or  into  the  sea  is  computed  at  783,000,000  tons.  Soil  wash 
reduces  by  10  or  20  per  cent,  the  productivity  of  upland  farms 
and  increases  channel  cutting  and  bar  building  in  the  rivers. 
The  annual  loss  to  the  farms  alone  is  fully  $500,000,000,  and 
large  losses  follow  the  fouling  of  the  waters  and  the  diminished 
navigability  of  the  streams. 

Through  imperfect  control  of  the  running  waters  lowlands 
are  temporarily  or  permanently  flooded.  It  is  estimated  that 
there  are  in  mainland  United  States  about  75,000,000  acres  of 
overflow  and  swamp  lands  requiring  drainage;  that  by  sys- 
tematic operation  these  can  be  drained  at  moderate  expense, 
and  that  they  would  then  be  worth  two  or  three  times  the  pres- 
ent value  and  cost  of  drainage,  and  would  furnish  homes  for 
10,000,000  people. 

It  is  estimated  that  the  quantity  of  fresh  water  stored  in 
lakes  and  ponds  (including  the  American  portion  of  the  Great 
Lakes)  is  about  600  trillion  cubic  feet,  equivalent  to  three 
years'  rainfall  or  eight  years '  run-off.  Some  6,000,000  of  our 
people  draw  their  water  supply  from  lakes. 

A  large  part  of  that  half  of  the  annual  rainfall  not 
evaporated  lodges  temporarily  in  the  soil  and  earth.  It  is 
estimated  that  the  ground  water  to  the  depth  of  100  feet 
averages  16%  per  cent,  of  the  earth  volume,  or  over  1,400  tril- 
lion cubic  feet,  equivalent  to  seven  years'  rainfall  or  twenty 
years '  run-off.  This  subsurface  reservoir  is  the  essential  basis 
of  agriculture  and  other  industries  and  is  the  chief  natural  re- 


114          CONSERVATION  OF  RESOURCES 

source  of  this  country.  It  sustains  forests  and  all  other  crops 
and  supplies  the  perennial  springs  and  streams  and  wells  used 
by  four-fifths  of  our  population  and  nearly  all  our  domestic 
animals.  Its  quantity  is  diminished  by  the  increased  run- 
off due  to  deforestation  and  injudicious  farming.  Although 
the  volume  of  the  available  ground  water  is  subject  to  control 
by  suitable  treatment  of  the  surface,  little  effort  has  been  made 
to  retain  or  increase  it,  and  it  is  probable  that  fully  10  per 
cent,  of  this  rich  resource  has  been  wasted  since  settlement  be- 
gan. The  water  of  the  strata  below  100  feet  supplies  artesian 
and  deep  wells,  large  springs,  and  thermal  and  mineral  waters. 
It  can  be  controlled  only  through  the  subsurface  reservoir. 

Of  the  35  trillion  cubic  feet  of  cut-off,  the  chief  share  is 
utilized  by  natural  processes  or  by  agriculture  and  related  in- 
dustries. On  an  average  the  plant  tissue  of  annual  growths 
is  three-fourths  and  of  perennial  growths  three-eighths  water, 
of  human  and  stock  food  over  80  per  cent,  is  water,  and  in 
animal  tissue  the  ratio  is  about  the  same ;  and  since  water  is  the 
medium  for  organic  circulation,  the  plants  and  animals  of 
the  country  yearly  require  an  amount  many  times  exceeding 
their  aggregate  volume.  Even  in  the  more  humid  sections  of 
the  country  the  productivity  of  the  soil  and  the  possible  human 
population  would  be  materially  increased  by  a  greater  rain- 
fall, leaving  a  larger  margin  for  organic  and  other  chemical 
uses.  Except  through  agriculture  and  forestry  little  general 
effort  is  made  to  control  the  annual  cut-off,  although  some 
farmers  in  arid  regions  claim  to  double  or  triple  the  crop  from 
given  soil  by  supplying  water  just  when  needed  and  withhold- 
ing it  when  not  required. 

Water  is  like  other  resources  in  that  its  quantity  is  limited. 
It  differs  from  such  mineral  resources  as  coal  and  iron,  which 
once  used  are  gone  forever,  in  that  the  supply  is  perpetual; 
and  it  differs  from  such  resources  as  soils  and  forests,  which 
are  capable  of  renewal  or  improvement,  in  that  it  can  not  be 
augmented  in  quantity,  though  like  all  other  resources  it  can 
be  better  utilized.  , 


CONSERVATION  OF  RESOURCES  115 

The  first  requisite  for  waterway  improvement  is  the  control 
of  the  waters  in  such  manner  as  to  reduce  floods  and  regulate 
the  regimen  of  the  navigable  rivers.  The  second  requisite 
is  development  of  terminals  and  connections  in  such  manner 
as  to  regulate  commerce. 

In  considering  the  uses  and  benefits  to  be  derived  from  the 
waters,  the  paramount  use  should  be  water  supply;  next 
should  follow  navigation  in  humid  regions  and  irrigation  in 
arid  regions.  The  development  of  power  on  the  navigable 
and  source  streams  should  be  coordinated  with  the  primary 
and  secondary  uses  of  the  waters.  Other  things  equal,  the 
development  of  power  should  be  encouraged,  not  only  to 
reduce  the  drain  on  other  resources,  but  because  properly 
designed  reservoirs  and  power  plants  retard  the  run-off  and  so 
aid  in  the  control  of  the  streams  for  navigation  and  other 
uses. 

Broad  plans  should  be  adopted  for  a  system  of  waterway 
improvement  extending  to  all  uses  of  the  waters  and  benefits 
to  be  derived  from  their  control,  including  the  clarification  of 
the  water  and  abatement  of  floods  for  the  benefit  of  navigation ; 
the  extension  of  irrigation ;  the  development  and  application  of 
power ;  the  prevention  of  soil  wash ;  the  purification  of  streams 
for  water  supply;  and  the  drainage  and  utilization  of  the 
waters  of  swamp  and  overflow  lands. 

To  promote  and  perfect  these  plans  scientific  investiga- 
tions, surveys,  and  measurements  should  be  continued  and  ex- 
tended, especially  the  more  accurate  determination  of  rainfall 
and  evaporation,  the  investigation  and  measurement  of 
ground  water,  the  gaging  of  streams  and  determination  of 
sediment,  and  topographic  surveys  of  catchment  areas  and 
sites  available  for  control  of  the  waters  for  navigation  and  re- 
lated purposes. 

National  efficiency.  [Here  were  given  a  few  of  the  data 
set  forth  more  fully  in  the  Keport  on  National  Vitality,  a  sum- 
mary of  which  is  presented  elsewhere  in  this  book.] 

General  conclusions.    The  permanent  welfare  of  the  nation 


116          CONSERVATION  OF  RESOURCES 

demands  that  its  natural  resources  be  conserved  by  proper 
use.  To  this  end  the  States  and  the  nation  can  do  much  by 
legislation  and  example.  By  far  the  greater  part  of  these  re- 
sources is  in  private  hands.  Private  ownership  of  natural  re- 
sources is  a  public  trust;  they  should  be  administered  in  the 
interests  of  the  people  as  a  whole.  The  States  and  nation 
should  lead  rather  than  follow  in  the  conservative  and  efficient 
use  of  property  under  their  immediate  control.  But  their 
first  duty  is  to  gather  and  distribute  a  knowledge  of  our  nat- 
ural resources  and  of  the  means  necessary  to  insure  their  use 
and  conservation,  to  impress  the  body  of  the  people  with  the 
great  importance  of  the  duty,  and  to  promote  the  cooperation 
of  all.  No  agency,  State,  federal,  corporate,  or  private,  can  do 
the  work  alone. 

Finally,  the  conservation  of  our  resources  is  an  immediate 
and  vital  concern.  Our  welfare  depends  on  conservation. 
The  pressing  need  is  for  a  general  plan  under  which  citizens, 
States,  and  nation  may  unite  in  an  effort  to  achieve  this  great 
end.  The  lack  of  cooperation  between  the  States  themselves, 
between  the  States  and  the  nation,  and  between  the  agencies  of 
the  National  Government,  is  a  potent  cause  of  the  neglect  of 
conservation  among  the  people.  An  organization  through 
which  all  agencies — State,  national,  municipal,  associate,  and 
individual — may  unite  in  a  common  effort  to  conserve  the 
foundations  of  our  prosperity  is  indispensable  to  the  welfare 
and  progress  of  the  nation.  To  that  end  the  immediate  crea- 
tion of  a  national  agency  is  essential.  Many  States  and  as- 
sociations of  citizens  have  taken  action  by  the  appointment  of 
permanent  conservation  commissions.  It  remains  for  the  na- 
tion to  do  likewise,  in  order  that  the  States  and  the  nation,  as- 
sociations and  individuals,  may  join  in  the  accomplishment  of 
this  great  purpose. 


DEPRECIATION  IN  COTTON  FACTORIES 

[IN  the  Tariff  Board's  report  on  Cotton  Manufactures  the  difficulties 
in  arriving  at  a  rate  of  depreciation  of  the  plant  are  explained,  and 
an  average  rate  of  depreciation  is  indicated.  (House  Document  643, 
62d  Congress,  2d  session;  pub.  March  26,  1912,  p.  376.)] 

Depreciation.  The  schedule  was  so  drawn  up  as  to  get 
not  only  the  lump  sum  charged  by  different  concerns  under 
that  head,  but  also  the  basis  on  which  the  charge  was  figured. 
For  this  reason  the  original  value  of  the  buildings  and  of  the 
machinery  and  equipment  were  called  for.  In  most  instances, 
however,  this  proved  an  impossible  task.  Several  companies 
have  been  in  existence  for  decades,  some  of  them  dating  back 
anywhere  from  one-half  to  three-quarters  of  a  century,  and 
their  records  failed  to  disclose  the  necessary  information.  In 
other  cases  companies  have  gone  through  one  or  more  reorgani- 
zations, changing  ownership,  in  which  case  they  were  fre- 
quently acquired  as  a  going  concern  without  any  detailed  rec- 
ord being  preserved  of  the  original  physical  value  of  the 
plant.  It  was  therefore  found  more  practicable  to  take  as  a 
basis  the  present  appraisal  value  of  the  different  plants. 
These  values  were  in  most  cases  ascertained  from  appraisals  of 
mutual  insurance  companies,  records  of  which  were  kept  at  the 
mills.  In  the  few  cases  where  no  appraisals  had  been  made 
the  value  was  ascertained  from  original  construction  accounts 
and  similar  resources. 

The  rate  charged  for  depreciation  differs  from  plant  to 
plant.  Some  have  one  rate  for  buildings  and  another  for 
machinery  and  equipment.  Others  carry  the  system  still  fur- 
ther and  have  different  rates  of  depreciation  for  various  parts 
of  the  plant,  charging  one  rate  for  spinning  machinery,  an- 
other rate  for  weaving,  and  another  for  the  boilers  and  power 

117 


118  DEPRECIATION  IN  FACTORIES 

plant,  etc.  Others,  again,  have  one  flat  rate,  including  both 
buildings  and  machinery,  although  they  recognize  that  the  two 
are  subject  to  different  degrees  of  depreciation.  In  the  case 
of  one  or  two  important  companies  it  was  found  that  the 
single  rate  of  depreciation  was  carried  still  further,  including 
not  only  machinery  and  buildings,  but  even  the  value  of  the 
real  estate.  Still  others,  as  has  been  pointed  out  earlier  in  the 
discussion  of  the  question  of  repairs  and  maintenance,  carried 
no  allowance  for  depreciation,  but  charged  all  additions  to  the 
plant  by  way  of  new  machinery,  extensions  of  buildings,  etc., 
to  the  repair  account,  thus  paying  for  it  out  of  current  earn- 
ings. 

It  therefore  becomes  clearly  apparent  that  some  uniform  rate 
for  depreciation  as  well  as  repairs  would  have  to  be  adopted. 
A  modern  mill  equipped  with  looms  of  the  latest  construc- 
tion, which  have  been  in  operation  only  a  few  years,  will  mani- 
festly have  an  entirely  different  repair  account  from  that  of  a 
mill  with  looms  anywhere  from  twenty  to  fifty  years  old.  Not 
only  will  the  efficiency,  and  therefore  the  resultant  labor  cost 
per  unit  of  product,  be  different  in  the  two  mills,  but  the  actual 
expenses  incurred  for  repairs  will  be  vastly  greater  in  one  case 
as  compared  with  the  other.  Repairs  may  vary  greatly  from 
year  to  year.  A  new  plant  may  go  on  for  a  number  of  years 
incurring  only  a  slight  expense  for  repairs  which  makes  up  for 
the  preceding  years.  An  older  mill,  after  running  for  several 
years,  may  spend  a  considerable  amount  of  money  on  over- 
hauling the  mill,  charging  the  expense  to  repairs  for  that  year, 
and,  as  a  result  of  this,  run  for  several  years  after  that  at  a 
small  expense.  It  would  be  purely  a  matter  of  accident  for  the 
investigation  of  the  board  to  cover  either  the  one  or  the  other 
year,  yet  neither  the  heavy  expense  for  repairs  during  the  one 
year  nor  the  very  light  expense  during  the  intervening  years 
would  be  a  fair  figure  to  be  charged  to  the  repair  account. 

To  arrive  at  an  accurate  estimate  of  the  repair  account  would 
have  required  taking  the  repairs  for  several  years  and  then 
averaging  the  amount.  This  could  not  be  done  without  a  care- 


DEPRECIATION  IN  FACTORIES  lid 

ful  audit  of  every  item  of  expense  to  separate  the  expenses 
properly  chargeable  to  repairs  from  those  incurred  for  plant 
additions  and  betterments.  With  the  limited  time  at  the  dis- 
posal of  the  board  such  a  procedure  was  out  of  the  question. 
The  only  way  out  of  the  difficulty  was,  therefore,  to  arrive  at  a 
normal  rate  for  depreciation  and  repairs,  based  upon  the  ex- 
perience of  leading  engineers  engaged  in  the  erection  of  textile 
plants  and  the  installation  of  textile  machinery.  After  a  con- 
sultation with  such  engineers  and  a  leading  appraisal  com- 
pany in  the  United  States,  which  has  appraised  a  large  number 
of  textile  plants  both  in  the  cotton  and  woolen  industries  at 
different  stages  in  the  lives  of  the  plants,  it  was  found  that  a 
fair  normal  rate  to  be  allowed  for  cotton-manufacturing  plants 
for  depreciation  and  repairs  would  be  2%  per  cent,  on  build- 
ings and  5  per  cent,  on  machinery  and  equipment,  and  this  rate 
was  uniformly  charged  for  all  plants.  In  apportioning  the 
total  allowance  between  repairs  and  depreciation,  the  repair 
expense  actually  incurred  during  the  year  under  investigation 
was  deducted  from  the  amount  equal  to  5  per  cent,  on  the 
value  of  the  machinery  and  2y2  per  cent,  on  buildings,  and  the 
difference  thus  obtained  was  allowed  for  depreciation.  It 
should  be  noted  that  in  any  case  the  element  of  depreciation 
is  a  very  small  factor  in  the  cost  of  production  per  unit  of 
product. 


CAPITALIZATION  AND  URBAN  LAND  VALUES 

[FROM  the  Principles  of  City  Land  Values,  by  R.  M.  Hurd,  cited 
above  on  the  subject  of  rents,  are  taken  the  following  cogent  expres- 
sions of  broad  experience  on  the  subject  of  capitalization.] 

Capitalization  rate  [page  129].  With  an  established 
economic  rent,  the  sole  remaining  factor  to  transform  this 
into  intrinsic  value  1  is  the  rate  of  capitalization.  As  capitali- 
zation rates  vary  with  securities,  Government  bonds  selling 
below  a  2  per  cent,  basis,  railroad  bonds  and  stocks  on  a  8^2 
to  5  per  cent,  basis,  and  industrials  on  a  7  to  10  per 
cent,  basis,  so  the  rates  of  capitalization  of  urban  rents  vary 
from  4  per  cent,  for  the  highest  class  of  property  in  the  largest 
cities,  to  5  and  6  per  cent,  for  second-class  property  in  the 
same  cities,  or  for  first-class  property  in  smaller  cities,  7,  8  and 
10  per  cent,  for  tenements  in  the  largest  cities,  and  12  to  15 
per  cent,  for  temporary  utilization  or  disreputable  purposes 
in  the  smaller  cities.  The  great  power  of  capitalization  rates 
on  values  is  due  to  the  fact  that  for  every  change  of  1  per 
cent,  in  the  rate  of  capitalization,  values  may  change  from 
twelve  to  twenty-five  times  the  difference  in  interest.  For 
example,  a  property  with  a  net  income  of  $10,000  would  sell  on 
an  8  per  cent,  basis  at  $125,000,  on  a  6  per  cent,  basis  at 
$166.000,  and  on  a  4  per  cent,  basis  at  $250,000.  The  lower 
the  capitalization  rate  the  greater  the  effect  of  any  changes 
of  values:  For  example,  a  fall  from  8  to  7  per  cent, 
adds  but  14  per  cent,  to  the  value  of  the  property,  while  a  fall 
from  5  to  4  per  cent,  adds  25  per  cent,  to  the  value 
of  the  property.  Moreover,  as  low  interest  rates  apply  to  the 

1  ["Intrinsic  value,"  a  term  with  a  good  many  troublous  implications, 
may  be  here  understood  as  valuation,  or  capitalization. — ED.] 

120 


URBAN  LAND- VALUES  121 

largest  properties  all  further  fractional  lowering  of  rates  re- 
sults in  an  enormous  mass  of  values.  The  marked  difference 
between  capitalization  rates  of  high-class  and  low-class  prop- 
erty in  the  same  city  indicates  the  large  number  of  people 
who  desire  to  own  high-class  property,  and  the  few  who  desire 
to  own  low-class  property.  The  reason  for  such  preference  is 
that  with  high-class  property,  rents  are  more  stable  and  easily 
collected,  the  property  is  more  quickly  and  certainly  convert- 
ible, it  can  be  mortgaged  at  a  lower  rate  of  interest  and  for  a 
larger  percentage  of  value,  the  buildings  depreciate  much  less 
rapidly  and  the  prospects  of  increase  in  value  are  better. 

Land  a  slow  asset.  That  land,  even  of  the  highest  type  and 
in  the  largest  cities,  is  a  slow  asset,  is  due  to  a  number  of 
causes,  among  them  being  the  fact  that  land  is  not  easily 
passed  from  hand  to  hand  as  are  stocks  and  bonds,  land  in- 
volves personal  or  directly  deputed  management,  where  stocks 
and  bonds  do  not,  there  is  no  Exchange  with  daily  quotations 
giving  the  values  of  land,  as  with  stocks  and  bonds;  and 
finally  the  value  of  land  is  influenced  by  many  complex  chang- 
ing factors,  whose  effects  are  differently  estimated  by  differ- 
ent people.  Because  land  is  a  slow  asset,  convertibility  or 
certainty  and  speed  in  selling  it,  produces  a  high  premium  for 
the  best  property  by  lowering  its  capitalization  rate. 

Farm  acreage  to  city  sites.1  Starting  from  the  condition  of 
no  value  in  land  when  a  city  originates,  let  us  consider  the 
scale  of  average  values  of  residence  and  business  land  in  cities 
of  various  sizes,  land  used  for  other  purposes  being  omitted  as 
being  more  of  an  individual  problem.  At  the  outer  circumfer- 
ence of  cities  land  is  held  as  acreage,  the  prices  per  acre  ad- 
vancing from  the  normal  value  of  farm  land  near  cities,  $50 
to  $150  per  acre,  up  to  market-garden  land,  which  may  earn 
interest  on  $300  to  $1,000  per  acre,  and,  finally,  to  speculative 
tracts  held  at  $500  to  $5,000  per  acre,  whose  prices  are  based  on 
the  estimated  earnings  of  the  land  when  it  secures  the  an- 

i[The  following  paragraphs  reproduce  the  chapter  entitled,  "Scale  of 
Average  Values,"  pp.  133-144.] 


122  URBAN  LAND- VALUES 

ticipated  utilization.  Since  the  proportion  of  land  occupied 
by  streets  averages  about  35  per  cent.,  the  conversion  of  acre- 
age into  lots  means  a  loss  in  building  area  of  that  percentage, 
so  that  with  the  expenses  of  platting,  opening  streets,  taxes, 
loss  of  interest,  etc.,  it  is  generally  estimated  that  property 
bought  by  the  acre  must  sell  by  the  lot  for  double  the  acre 
price  in  order  to  avoid  loss  in  handling. 

Mechanics1  residence  lots.  The  cheapest  lots  in  any  city 
are  those  utilized  for  workmen's  houses,  varying  in  smaller 
cities  from  $150  to  $300.  The  larger  the  city  the  larger  the 
number  of  well-paid  mechanics  and  the  greater  the  effective 
demand  for  lots.  A  mechanic's  lot  on  the  outskirts  of  a 
small  city  differs  from  one  on  the  outskirts  of  New  York  not 
only  in  price  but  in  size,  those  in  small  towns  having  50  to  60 
feet  frontage,  and  those  in  New  York  15  to  20  feet  frontage 
with  usually  two-family  houses  on  them.  Thus  an  average 
price  of  $150  for  50  x  100  foot  lots  in  large  cities  would  be 
equivalent  to  $7,700  per  net  acre  after  platting,  or  $5,000  per 
acre  as  acreage.  In  the  outskirts  of  the  smaller  cities  platted 
land  runs  as  low  as  $2  to  $4  per  front  foot,  and  there  are 
built  up  mechanics '  sections  with  street  car  accommodation  less 
than  a  mile  from  the  center  of  cities  of  30,000  population, 
where  land  sells  at  but  $5  per  front  foot,  equivalent  to  5  cents 
per  square  foot. 

Better  residence  lots.  From  this  figure,  land  for  detached 
residences  grades  upwards  more  in  proportion  to  the  class  of 
people  utilizing  it  than  the  size  of  the  city,  to  land  worth  $20 
to  $30  per  front  foot  for  the  residences  of  small  shopkeepers 
and  clerks,  and  $40  to  $75  for  the  more  fashionable  residences 
in  cities  of  75,000  population  and  under.  Such  residence  prop- 
erty would  have  good  street  car  service,  graded  streets,  side- 
walks, sewer,  gas,  water,  electric  light,  etc.,  the  cost  of  which 
may  vary  from  $5  to  $15  per  front  foot.  The  best  residence 
land  in  cities  of  100,000  to  200,000  population  runs  from  $75 
to  $150  per  front  foot,  in  cities  of  200,000  population  to  400,- 
000  population  from  $300  to  $500  per  front  foot,  and  in  New 


URBAN  LAND- VALUES  123 

York  from  $2,000  to  $5,000  per  front  foot  on  the  side  streets 
and  $6,000  to  $9,000  per  front  foot  on  Fifth  Avenue. 

Business  lots.  The  poorest  locations  utilized  for  shops  in 
the  small  cities  are  ordinarily  worth  from  $50  to  $75  per  front 
foot  from  which  point  values  rise  to  an  average  of  $600  to 
$800  per  front  foot  for  the  best  business  property  in  cities  of 
50,000  population,  about  $2,000  per  front  foot  in  cities  of  200,- 
000  population,  $10,000  in  cities  of  2,000,000  population,  and 
$15,000  to  $18,000  in  New  York.  Above  these  levels,  land  in 
the  financial  district  of  New  York  averages  from  $15,000  to 
$25,000  per  front  foot,  this  financial  district  having  no  counter- 
part in  any  other  American  city  and  being  due  to  the  su- 
premacy of  New  York  as  a  financial  center.  The  highest 
values  in  London  are  similarly  in  the  financial  district,  while 
in  Chicago  and  most  of  the  smaller  cities,  shopping  land,  owing 
to  the  large  amount  of  retail  business  and  small  amount  of 
banking,  is  worth  about  twice  as  much  as  financial  land.  The 
average  figures  given  represent  corner  lots  having  not  less 
than  2500  square  feet,  $350  per  square  foot  (equal  to  $35,000 
per  front  foot)  having  been  paid  thirty  years  ago  for  two 
small  corners  at  Wall  and  Broad  Streets,  and  recently  for  a 
small  corner  at  Broadway  and  Thirty-fourth  Street.  An  ap- 
proximate scale  of  normal  values  based  on  the  consideration 
that  each  thousand  of  population  adds  from  $10  to  $12  to  the 
front-foot  value  of  the  best  business  locations  and  from  $1  to 
$2  to  the  front-foot  value  of  the  best  residence  locations  would 
be  as  follows,  it  being  understood  that  the  application  of  any 
such  scale  is  limited  in  practice  by  differences  in  wealth, 
character  of  industries  and  inhabitants,  topography,  transpor- 
tation, platting,  climate,  etc. 

Ratio  of  business  and  residence  value.  The  proportion 
between  land  values  due  to  different  utilities  varies  widely  in 
different  cities,  evidencing  the  response  of  special  sections  to 
special  forces.  Thus  the  best  business  and  the  best  residence 
land  in  the  same  city  shows  in  New  York,  with  $35,000  per 
front  foot  for  business  and  $9,000  per  front  foot  for  residence 


124  URBAN  LAND- VALUES 

TABLE  I. 

City  Best  business  Best  residences  [Ratio  of 

population.  per  front  foot.  per  front  foot.  highest. 

25,000  $300  to      $400  $25  to      $40  10.0: 

50,000  600  to     1,000  40  to        75  13.3: 

100,000  1,200  to    2,000  75  to      150  13.3: 

150,000  1,500  to     2,500  100  to      200  12.5: 

200,000  1,800  to     3,000  100  to     300  10.0: 

300,000  2,500  to    4,500  200  to      500               9.0: 

600,000  4,000  to     7,000  500  to  1,000               7.0:1 

1,000,000  7,000  to  10,000  700  to  1.500               6.6:1 

2,000,000  9,000  to  16,000  1.000  to  2,000                8.0:1 

3,500,000  18,000  to  35,000  4,000  to  9,000               4.0:1] 

land,  a  proportion  of  about  4  to  1 ;  in  Buffalo  with  $4,500  for 
business  land  and  $500  for  residence  land  a  proportion  of  9  to 
1 ;  in  Minneapolis  with  $2,500  for  business  and  $100  for  resi- 
dence land  a  proportion  of  25  to  1;  and  in  Seattle  with 
$2000  for  business  and  $100  for  residence,  a  proportion  of  20 
to  1.  When  we  turn  to  Southern  cities,  Richmond  with  $1,600 
for  business  and  $300  for  residence  shows  a  proportion  of  5  to 
1 ;  and  Atlanta  with  $2,000  for  the  best  business  and  $200  for 
the  best  residence,  a  proportion  of  10  to  1.  As  explaining  this 
difference  between  Western  and  Southern  cities,  business  is 
active  and  progressive  in  Western  cities,  producing  high  busi- 
ness values,  while  residences  are  scattered  by  the  trolley  and 
are  not  held  together  by  the  old-established  residence  sections, 
whereas  in  Southern  cities  the  scale  of  business  operations  is 
less,  partly  owing  to  the  diminished  purchasing  power  of  the 
negroes,  resulting  in  low  business  values,  while  residence  values 
are  raised  by  the  greater  importance  attached  to  social  con- 
siderations and  the  greater  age  of  the  cities.  The  abnormally 
high  values  of  residence  property  in  New  York  testifies  to  its 
limited  quantity  and  to  the  keen  demand  for  it  on  the  part  of 
the  many  millionaires  who  make  New  York  their  home. 

Wholesale  business.  Heavy  wholesale  property  responds 
but  feebly  to  increased  population,  varying  from  $100  to  $400 
in  value  in  cities  of  300,000  people  or  under.  Where  values 
run  above  these  figures  the  property  would  include  some  retail 
feature.  The  proportion  of  value  between  the  best  retail  land 


URBAN  LAND-VALUES 


125 


and  the  best  wholesale  is,  therefore,  one  which  increases  with 
the  size  of  the  city,  ranging  from  4  to  1  in  the  smaller  cities, 
up  to  10  to  1  in  the  largest.  As  examples  of  the  value  of  the 
best  retail,  best  wholesale  and  best  residence  land  in  various 
cities,  the  following  list  of  front  foot  values  is  submitted. 


Best  Best 

wholesale,  residence, 

$3,000  $9,000 

'  2,000  *  2,000 


TABLE 

n. 

Best 

Population.i 

retail. 

New   York  

3,437,202 

$18,000 

Financial  land.. 

.  . 

35,000 

Chicago  

.  .    1,698,575 

15,000 

Financial  land.. 

.  . 

8,000 

Philadelphia    

1,293,697 

11,000 

Washington    

.  .      278,718 

5,000 

Louisville   

.  ,      204,731 

1,700 

Minneapolis   

202,718 

2,500 

169,164 

2,500 

.  .       163,752 

2,500 

St.  Paul  

163,065 

1,800 

133,859 

1,800 

Toledo  

131,822 

2,000 

Memphis  

102,320 

2,000 

Portland,  Ore  

90,426 

1,600 

Atlanta  

89,872 

2,000 

Richmond  

85,050 

1,800 

Seattle    

80,671 

2,000 

Des   Moines  

62,139 

1,500 

Salt  Lake  City... 

53,531 

1,400 

Duluth    

52,969 

1,000 

Spokane    

36,848 

800 

400 
400 
400 
450 
400 
250 
300 
400 
300 
400 
150 
400 
200 
200 
300 
200 


2,000 

500 

150 

100 

150 

150 

150 

100 

150 

60 

70 

200 

200 

80 

75 

75 

65 


Nature  of  city-growth  [page  145]  .2  The  total  value  of  a 
city's  site  is  broadly  based  on  population  and  wealth,  the  physi- 
cal city  being  the  reflex  of  the  total  social  activities  of  its  in- 
habitants. Whatever  the  type  of  city,  growth  consists  of 
movement  away  from  the  point  of  origin  and  is  of  two  kinds ; 
central,  or  in  all  directions,  and  axial,  or  along  the  water- 
courses, railroads  and  turnpikes  which  form  the  framework  of 
cities.  Modern  rapid  transit  stimulates  axial  growth,  pro- 
ducing star-shaped  cities,  whose  modification  in  shape  comes 
chiefly  from  topographical  faults.  .  .  . 

i[Census  figures  for  1900.] 

2 [The  following  paragraphs  contain  the  larger  part  of  the  last  chapter, 
the  summary  of  the  book,  but  omit  the  diagrams  and  charts.] 


126  URBAN  LAND- VALUES 

[Page  148.]  While  the  outward  glacial  movement  of  a  city 
continues,  the  daily  currents  of  travel  within  alter  its  internal 
structure.  The  fluidity  of  daily  traffic  shifts  utilities,  creates 
plastic  conditions  in  cities  and  keeps  values  in  a  state  of  un- 
stable equilibrium. 

Elements  in  a  forecast  of  land- value.  To  look  at  the  prob- 
lem from  the  individual  standpoint,  in  attempting  to  state  the 
value  of  any  single  property,  the  inquiry  would  seek  first,  upon 
what  forces  does  the  city  itself  depend,  how  permanent  are 
they,  how  diversified,  are  they  strengthening  and  what  is  the 
resulting  index  figure,  to  wit,  the  rate  of  increase  of  the  city 's 
population ;  next,  what  are  the  characteristics  of  the  section  of 
the  city  in  which  the  property  is  located,  its  past  history,  its 
present  stability,  its  future  prospects;  what  is  the  central 
strength  of  the  property,  how  near  the  main  center  of  the  city 
or  the  various  subcenters  of  attraction ;  what  is  its  axial 
strength,  the  quantity,  quality  and  regularity  of  the  passing 
travel,  what  is  the  character  of  building  on  the  property  as  to 
suitability,  planning,  physical  condition,  prospect  of  changing 
utility,  management,  convertibility,  gross  and  net  income;  at 
what  prices  have  surrounding  property  been  selling,  are  they 
rising  or  falling,  and  do  they  suggest  any  factors  not  yet  taken 
into  account ;  is  the  property  liable  to  be  injured  or  benefited 
by  changes  in  the  building  laws;  is  there  any  special  enter- 
prise or  strength  on  the  part  of  the  owner  or  of  surrounding 
owners  likely  to  affect  the  property,  what  would  be  the  prob- 
able effect  of  any  inventions  or  improvements  in  transporta- 
tion or  the  construction  of  buildings;  and,  finally,  what  are 
the  general  commercial  conditions  as  affecting  the  earning 
power  of  tenants,  actual  or  prospective,  and  financial  condi- 
tions as  affecting  the  capitalization  rate. 

The  problem  is  never  a  simple  one,  being  as  complex  as  city 
life  itself,  but  it  is  not  insoluble,  since  the  forces  creating  cities 
are  governed  by  uniform  laws,  like  causes  producing  like  re- 
sults, apparent  exceptions  being  due  to  the  influence  of  factors 
not  reckoned  on.  The  popular  impression  that  the  ability  to 


URBAN  LAND- VALUES  127 

forecast  future  movements  of  city  growth  points  a  quick  way 
to  fortune  is  an  overestimate,  since  real  estate  movements  are 
slow,  large  capital  is  required  to  handle  it,  carrying  charges 
are  heavy,  and  even  though  the  forecast  may  be  ultimately 
correct,  the  rate  of  movement  is  uncertain,  depending  on  the 
operation  of  vast  economic  forces  impossible  of  exact  predic- 
tion. 

Unequal  changes  in  values.  If  business  expands  and  pop- 
ulation increases  in  a  city,  the  sum  total  of  land  values  is  cer- 
tain to  increase.  All  the  land,  however,  will  by  no  means 
increase  in  value,  the  great  mass  of  medium  business  and 
residence  property  advancing  but  slowly  since  it  supplies  the 
wants  of  a  large  number  of  people  of  moderate  earning  power 
who  cannot  pay  beyond  a  certain  price.  Coincident  with  the 
gradual  lifting  of  values  as  population  becomes  more  dense, 
decaying  sections,  left  behind  in  the  onward  march,  drop  down 
the  scale  of  inferior  utilities  and  values,  sometimes  to  the  point 
of  extinction.  Such  worn-out  property  exhibits  in  its  dilapi- 
dations both  absence  of  utility  and  public  confession  of  that 
fact.  If  population  and  business  become  stationary  the  sum 
total  of  land  values  will  decrease  in  proportion  to  the  previous 
discounting  of  future  growth,  subsequent  movements  consist- 
ing of  redistribution  of  value,  as  one  part  of  the  city  or  an- 
other, or  one  individual  or  another,  flourishes  or  declines. 

The  principal  causes  of  the  redistribution  of  value  in  all 
cities  are,  increase  in  population  and  wealth,  especially  in 
causing  relocation  or  extension  of  the  best  residence  district, 
changes  in  transportation,  such  as  new  surface,  elevated,  or 
underground  lines,  new  bridges,  tunnels,  ferries  and  railroads, 
and  the  readjustment  of  new  utilities  in  new  areas  harmoniz- 
ing the  complex  contending  factors. 

Present  tendencies  point  towards  greatly  increased  values 
at  strategic  points,  with  relative  and  frequently  absolute  drops 
in  value  in  locations  formerly  competitive.  The  quiet  side 
streets,  the  back  alleys  and  deserted  nooks  and  corners  where 
land  has  almost  no  value,  despite  its  proximity  to  valuable 


128  URBAN  LAND-VALUES 

land,  will  doubtless  continue  at  their  present  low  planes,  un- 
less they  are  either  reached  by  the  spreading  growth  from 
some  center  or  are  intersected  by  some  new  traffic  street. 

The  most  valuable  location.  The  point  of  highest  value, 
responding  in  scale  and  location  to  the  growth  of  the  city, 
moves  from  the  first  business  center  towards  the  best  residence 
district,  the  crest  of  the  wave  usually  being  the  middle  of  the 
retail  shopping  district,  frequently  strengthened  by  excep- 
tionally large  and  handsome  buildings,  and  occasionally 
checked  by  cross-traffic  streets.  Apart  from  any  factors  which 
may  deflect  the  line  of  growth,  the  land  lying  in  its  path  is 
certain  to  increase  in  value,  the  time  of  such  increase  however, 
being  difficult  to  gage,  while  the  land  left  behind  will  usually 
sink  in  value,  although  in  the  largest  cities,  while  decreasing 
relatively  in  value  and  utility,  it  sometimes  increases  slightly 
in  absolute  value.  New  York,  the  one  financial  center  of  the 
country,  is  an  exception  in  that  its  financial  land  is  more  val- 
uable than  its  shopping  land. 

Causes  of  future  changes.  New  inventions  and  new  habits 
and  customs  will  probably  cause  the  most  marked  future 
changes  other  than  those  due  to  growth  and  transportation. 
All  cheapening  of  the  cost  of  buildings,  all  improvements  in 
construction,  all  inventions,  tend  constantly  to  destroy  the 
value  of  existing  buildings.  All  improvements  in  transporta- 
tion, such  as  the  trolley,  the  elevated,  the  underground,  the 
bicycle,  the  automobile — and  in  future  possibly  the  flying  ma- 
chine— tend  to  destroy  the  value  of  these  locations  which  de- 
pend on  existing  transportation.  All  changes  in  social  cus- 
toms, such  as  longer  summer  absences  from  the  city,  shift 
values,  as  in  this  instance  from  the  city  to  the  summer  resorts. 
The  great  interchange  of  travel  throughout  the  year  from  one 
city  to  another  strengthens  the  radiating  influence  of  the 
hotels,  while  the  movement  from  residences  to  flats  and  apart- 
ments, concentrates  population  and  augments  the  power  of 
capital  to  attract. 

Change  is  a  law  of  life,  and  as  long  as  human  activity  con- 


URBAN  LAND- VALUES  129 

tinues  to  alter  the  conditions  of  city  life,  and  human  tastes, 
prejudices,  fashions,  habits  and  customs  continue  to  vary,  city 
structure  and  values  will  shift  and  change,  but  the  study  of 
the  basic  principles  of  city  growth  should  reduce  errors  in 
forecasting  to  a  minimum,  permitting  well-equipped  intelli- 
gence, whether  in  buying,  selling,  renting,  loaning  on,  or  in 
any  way  dealing  with,  city  real  estate,  to  largely  eliminate  the 
power  of  chance. 


SOME  EXAMPLES  OF  INCREASING  LAND-VALUES 

[!N  The  A.  B.  C.  of  Taxation  (New  York,  Doubleday,  Page  and  Co., 
1909),  C.  B.  Fillebrown,  president  of  the  Massachusetts  Single  Tax 
League,  has  estimated  the  ground  rent  of  Boston,  and  has  given  a 
number  of  examples  of  changes  in  the  valuation  of  real  estate.  By 
the  kind  permission  of  the  author  the  following  extracts  are  here 
given  without  the  accompanying  argument  in  favor  of  the  single  tax, 
of  which  Mr.  Fillebrown  is  a  zealous,  but  fair-minded,  advocate.] 

A  calculation  of  Boston's  ground  rent  [page  16].  In  a 
systematic  attempt  ...  to  demonstrate  beyond  a  reasonable 
doubt  about  Jiow  much  gross  ground  rent  there  is  in  the  city 
of  Boston,  actual  sales  for  the  year  1902  and  actual  rentals 
have  been  collected  from  official  sources. 

One  hundred  and  twenty  pieces  of  real  estate  in  various 
sections  of  the  city  are  shown  to  have  been  sold  at  prices  aver- 
aging one-fifth  higher  than  their  assessed  valuation,  indicating 
that  at  least  in  these  one  hundred  and  twenty  cases  the  valu- 
ations were  less  than  five-sixths  of  the  selling  price. 

Landlords  and  real  estate  men  are  the  best  judges  of  the 
following  calculation  which,  taking  into  account  the  fact  that 
the  prices  given  in  these  tables  are  those  indicated  by  the 
revenue  stamps  on  deeds,  assumes  that  the  buildings  sold  for 
one-third  more  than  their  assessed  valuation: 

Deducting  from  the  total  of  prices  indicated  by  the  footing 

of  the  120  sales $7,291,375 

Four-thirds  of  assessed  valuation  of  buildings 2,772,933 

Would  give  perhaps  a  fair  estimate  of  what  the  land  sold  for    4,518,442 
To  this  it  is  necessary  to  add  the  capitalized  tax  upon  the 
land   for   the   same   year,    1900,   $3,758,600  x  $14.70    (the 
number  of  dollars  tax  per  thousand)  x20  (the  number  of 
years'  purchase) 1,105,028 

In  order  to  get  the  gross  capitalized  ground  rental  value  of 

the   land 5,623470 

Of  which  the  assessed  valuations  were  only  two-thirds, 

13Q 


INCREASING  LAND- VALUES  131 

Seven  hundred  and  fifty-one  rentals  of  estates,  together  with 
their  assessed  valuations,  averaging  $47,680  each,  were  also 
obtained  from  reliable  sources.  In  the  total  for  these  it  is 
found  that  the  net  rent  is  5  per  cent.  (4.8),  and  the  gross 
rent — net  rent  plus  taxes — is  6  per  cent,  of  the  assessed  valu- 
ation. That  is  to  say,  the  net  value,  based  upon  net  income 
to  the  owner,  corresponds  with  the  assessed  valuation,  and  is 
five-sixths  of  the  gross  value,  based  upon  what  the  user  pays 
for  the  land.  It  is  probable  that  these  estates  are  in  the  aggre- 
gate improved  to  less  than  one-half  of  their  normal  efficiency, 
and  hence  the  income  which  they  now  yield  is  less  than  5  per 
cent,  of  the  price  that  they  would  actually  sell  for. 
.  In  the  absence  of  contradictory  or  correcting  testimony,  it 
is  fair  to  ask  the  reader  to  accept  these  lists  of  120  sales  and 
751  estate  rentals  respectively  as  an  indication  of  the  ratio  ex- 
isting between  assessed  valuation  and  selling  value. 

Based  upon  the  foregoing  ratio,  the  following  conservative 
estimate  of  the  gross  land  value  of  Boston  is  submitted  for 
scrutiny  and  criticism: 

If  the  assessed  valuation  of  Boston's  land  for  1907,  which 

is  in  round  numbers $  653,000,000 

Is  five-sixths  of  its  selling  value,  then  the  addition  of 

one-fifth  130,600,000 


Would  give  us  as  the  net  selling  value 783,600,000 

Adding  to  this  the  capitalized  value  of  the  amount  of 
tax  now  on  the  land,  $15.90  per  thousand  on  $653,- 
000,000,  or  $10,382,000  at  twenty  years'  purchase 207,600,000 

Would  give  us  as  the  true  capitalized  ground  rental  value       991,200,000 
Add  moderate  estimate  for  franchises,  say 108,800,000 

And  we  should  have  a  total  capitalized  ground-rental 

value  of  at  least 1,100,000,000 

At  5  per  cent,  this  would  indicate  for  Boston  a  ground 
rent  of 55,000,000 

or  considerably  more  than  double  the  total  taxes  of 
Boston.  .  .  . 

An  object  lesson  in  land  values  [page  56].  In  this  and 
the  following  object  lessons  the  valuations,  unless  otherwise 
noted,  are  those  of  1907.  The  total  valuations  on  both  sides 


132  INCREASING  LAND- VALUES 

of  Winter  Street,  including  the  estates  on  the  Tremont  and 
Washington  Street  corners,  were : 

LAND. 


1898  $5.142,600  $61.57  per  sq.  ft.  $2,681,989  per  acre. 

1907  8,272,000   97.50  per  sq.  ft.  4,247,100  per  acre. 

BUILDINGS. 

1898  $675,000   $8.08  per  sq.  ft.  $353,836  per  acre. 

1907  605,200    7.13  per  sq.  ft.  310,582  per  acre. 


Showing  for  nine  years  an  increase  of  58  per  cent,  in  land, 
and  a  decrease  of  11  per  cent,  in  buildings. 

The  assessed  valuation  of  the  estate  at  the  southwest  corner 
of  Winter  and  Washington  Street  was  in  1907  $557,000  of 
which  $19.400  was  for  buildings.  The  land  alone,  1,955  square 
feet,  increased  from  $342,000,  $175  per  square  foot,  in  1898,  to 
$537,600,  $275  per  square  foot,  in  1907.  This  assessed  valua- 
tion of  $275  per  square  foot  for  land  is  the  highest  in  Boston. 
In  1893  the  estate  had  been  sold  for  $350,000.  The  present 
building  was  erected  in  1881,  but  it  is  no  distinct  improvement, 
in  height  or  otherwise,  over  its  predecessor.  .  .  . 

In  1907  the  estate  was  paying  the  owner  an  income  of  about 
$25,000.  The  Transit  Commission  took  this  estate  by  eminent 
domain,  and  settled  for  it  in  1908  for  $630,000  or  $320  per 
square  foot  for  the  land  and  buildings.  After  appropriating 
subway  station  accommodations,  it  leased  the  balance  of  the 
estate  for  the  sum  of  $28,000  a  year  and  taxes,  or  $36,000  as 
long  as  no  taxes  are  assessed.  This  is  a  return  of  about  4 1/2 
per  cent,  net  on  the  purchase  price  of  $630,000,  on  which  sum 
the  city  is  paying — as  the  money  was  borrowed — about  4  per 
cent.  .  .  . 

[Page  59.]  The  land  in  Winter  Street,  which  was  assessed 
at  less  than  $4  per  square  foot  in  1850,  was  assessed  in  1907  at 
$130  per  square  foot.  During  the  fifty-seven  years  interven- 
ing, the  income,  above  taxes,  from  the  land,  in  rent  and  appre- 
ciation has  amounted  to  an  average  of  150  per  cent,  annually 
on  the  investment  of  1850.  .  .  . 

Ratio  of  buildings  to  land  [page  62].    Massachusetts  has 


INCREASING  LAND-VALUES 


133 


fourteen  counties.  In  every  one  of  thirteen  of  these  counties 
the  assessed  value  of  the  buildings  exceeds  and  in  most  cases 
largely  exceeds  the  assessed  value  of  the  land.  In  the  one 
other  county,  Suffolk  (Boston,  Chelsea,  Revere,  and  Win- 
throp),  containing  49  per  cent,  of  the  whole  land  value  of  the 
state,  the  buildings  fall  far  below  the  land  in  value. 

Again,  eighty-eight  towns  (out  of  Massachusetts'  354  cities 
and  towns),  having  lowest  valuations,  show  average  assess- 
ments as  follows:  Of  buildings,  $130,000;  of  land,  $145,000. 
.  .  .  The  following  figures  show  Winter  Street  in  company 
with  the  three  smallest  towns: 


Peru 

Florida 

Winter  St.,  Boston. 


Buildings. 

$  46,530 

22,680 

30,790 

605,200 


Land. 

F    140,020 

84,825 

119,246 

8,272,000 


Ratio. 
33-100 
27-100 
25-100 
7-100 


For  the  county  of  Suffolk,  which  contains  the  city  of  Boston, 
as  well  as  for  the  State,  no  such  discrepancy  appears.  Fol- 
lowing are  the  figures : 


Buildings. 

County  of  Suffolk..  $  444,441,725 
Other  13  counties..      949,283,781 


Land. 

673,208,750 
679,071,599 


Ratio. 

66-100 

140-100 


Whole   state 1,393,725,486         1,352,280,349         101-100 

In  the  twelve  following  large  cities  and  towns  the  value  of 
the  buildings  greatly  exceeds  that  of  the  land. 


Len  x 

Buildings. 
$     2  306,500 

Land. 
$     1,731,375 

Ratio. 
133-100 

Pittsfield 

8,685,715 

6,971,255 

124-100 

North   Attleborough 
Gloucester  

2,411,210 
9,388.650 

1,256,613 

7,886,470 

191-100 
119-100 

Haverhill    

12,392,960 

9,772,050 

126-100 

Lawrence  

22,854,800 

18,587,850 

123-100 

Lynn    

29,892,705 

23,238,785 

128-100 

Holyoke  .......... 

18,194,860 

15,456.380 

117-100 

Springfield    

37,188,415 

36,131,445 

103-100 

Cambridge  

49,245,700 

39,989,600 

123-100 

Lowell    

33,293,590 

26,389,020 

126-100 

27,590,325 

22,878,475 

120-100 

Total    253,445,430  210,289,318         120-100 


134 


INCREASING  LAND- VALUES 


In  the  following  seventeen  cities  and  towns,  representative 
of  their  class,  the  valuation  of  the  buildings  is  in  the  average 
double  that  of  the  land : 


Buildings. 
Athol    $  2,324,908 


Clinton 
Abington 
Plymouth    . . . 

Amherst 

Chicopee 
Amesbury    . . , 
Newburyport 

Adams    

North  Adams, 
Attleborough  . 

Taunton  

Easthampton 
Rockland  .... 

Chelsea    

Blackstone    . . 
Gardner- 


Total 


4,246,230 
1,749,697 
6,477,025 
a,839,225 
8,115,900 
2,841,815 
5,269,850 
2,598,950 
7,257,210 
5,479,385 

11,024,365 
3,412,906 
2,346,350 

14,600,570 
1,244,065 
3,767,096 

81,595,727 


Land. 

1,204,097 

1,967,307 

634,610 
2,206,250 

899,535 
2,221,270 
1,397,681 
2,379,681 
1,085,300 
4,827,075 
3,474,395 
5,214,520 

408,720 

891,323 
8,922,300 

760,410 
1,395,618 


Ratio. 
193-100 
215-100 
275-100 
248-100 
204-100 
275-100 
203-100 
221-100 
239-100 
150-100 
158-100 
211-100 
836-100 
263-100 
163-100 
163-100 
270-100 


39,890,011        205-100 


Another  illustration  [page  86].  The  St.  Paul's  Church 
property  on  Tremont  Street,  Boston,  standing  between  two 
large  stores,  furnishes  another  good  illustration  of  what  we 
have  been  saying  and  reiterating. 

Less  than  ten  years  ago  $1,500,000  was  offered  for  this  prop- 
erty for  business  purposes,  and  the  offer  was  declined.  Since 
then  the  assessed  valuations  of  the  adjacent  Tremont  Street 
estates  between  "Winter  Street  and  Temple  Place  have  in- 
creased more  than  75  per  cent.  In  view  of  these  facts  it 
should  be  very  conservative  to  estimate  to-day : 

The  value  of  St.  Paul's  Church  property  at $2,000,000 

For  this  value  the  St.  Paul  Society  paid  in  1820 100,000 

The  people  of  Boston  have  since  contributed  by  their  aggre- 
gate and  particular  activities,  industries  and  expenditures     1,900,000 
An  annual  contribution  for  87  years  of  much  above 20,000 


But,  in  recent  years,  this  increase  in  value  has  been  at  the 
annual  rate  of  not  less  than . .  


75,000 


INCREASING  LAND- VALUES  135 

Church  property  being  exempt  from  taxation,  the  people  of 

Boston  have  to  make  up  the  amount  of  the  exemption. 

This,  in  the  case  of   St.  Paul's  is  $22,500,  and  for  all 

church  property  in  the  city  is  $385,000,  a  year. 
If  then  to  the  above  average  annual  contribution  of  the 

public  there  be  added  these  taxes  for  1907,  more  than....         22,000 

The  total  annual  contribution  amounts  to 97,000 

An  amount  equal  to  the  5  per  cent,  ground  rent  of  almost 
$2,000,000  worth  of  land,  or  to  the  taxes,  at  $15.90  per 
thousand,  on  $6,100,000  worth  of  property !  .  .  . 

The  undervaluation  of  urban  or  village  land  [page  125], 
A  few  illustrations  will  show  how  this  potential  agency, 
ground  rent,  escapes  observation  both  in  small  and  large  towns, 
and  in  small  cities  as  well. 

In  the  following  illustrative  examples,  the  ratio  between 
assessed  valuation  and  actual  net  value  of  land,  as  indicated 
by  actual  rentals,  is  calculated  by  deducting  from  the  net 
income  of  the  entire  estate  (i.e.,  total  income  less  taxes) 
an  amount  equal  to  10  per  cent,  of  the  assessed  valuation  of 
the  buildings,  to  cover  interest,  insurance,  repairs,  and  de- 
preciation. Twenty-five  specimen  estates  in  Lawrence,  Scitu- 
ate,  Clinton,  and  Whitman,  Mass.,  show  ratios,  thus 
calculated,  as  follows: 

25  estates  .  .  .  average  tax  rate  per  thousand . ...          $16.85 

f  Land  $  197,828 

Assessed  valuation  J  Buildings 236,955 

[  Total    434,783 

Gross  rental  of  properties  actually  received  by  the  owners. .          56,067 
Taxes  (on  $434,783,  at  $16.85  per  thousand) 7,325 

Net  rental  after  paying  all  taxes 48,742 

Less  10  per  cent,  on  buildings   ($236,955)    for  interest,  in- 
surance, repairs,  and  depreciation 23,695 

Net  income  from  land  alone  (equaling  12  per  cent,  on 

$197,828)  25,047 

This  income  is  5  per  cent,  return  on  an  indicated  net  value 

of  at  least 500,940 

Instead  of  less  than  40  per  cent,  of  that  amount,  or  the 

amount  at  which  the  land  is  assessed 197,828 


136  INCREASING  LAND-VALUES 

Leaving  out  the  city  of  Lawrence,  the  ratio  for  the  three 
smaller  communities  of  Scituate,  Clinton,  and  Whitman  av- 
erages only  30  per  cent. 

The  figures  for  the  above  twenty-five  estates  in  detail  are 
as  follows: 

In  Lawrence,  a  cotton  manufacturing  city  of  70,000  in- 
habitants, of  seven  estates  the  several  assessed  valuations  were 
respectively  72,  67,  62,  48,  42,  38,  and  15  per  cent,  of  the 
net  value.  The  average  valuation  was  48  per  cent,  of  the  net 
land  value. 

In  Scituate,  Mass.,  a  shore  town  of  2600  inhabitants,  of  four 
estates  the  several  assessed  valuations  were  respectively  521/2, 
50,  48,  and  13  per  cent,  of  the  net  value.  The  average  assessed 
valuation  was  37%  per  cent,  of  the  net  land  value. 

In  Clinton,  a  manufacturing  town  of  13,000  inhabitants,  of 
five  estates  the  several  assessed  valuations  were  respectively 
38,  37,  341/2,  271/2,  and  22%  per  cent,  of  the  net  value.  The 
average  assessed  valuation  was  32  per  cent,  of  the  net  land 
value. 

In  Whitman,  a  shoe  manufacturing  town  of  6500  inhabit- 
ants, of  nine  estates  the  several  assessed  valuations  were  re- 
spectively 83,  62,  45i/2,  43,  32,  27,  23,  19,  and  14  per  cent, 
of  the  net  value.  The  average  assessed  valuation  was  21 
per  cent,  of  the  net  land  value.  .  .  . 

The  minor  importance  of  agricultural  rent  [page  129]. 
.The  Massachusetts  valuations  for  1907  offer  a  market  illus- 
tration. , 


Assessed  valuations. 
33  cities  

Land. 
$1,088,329,177 

Buildings. 

$    998,896,745 

Total. 

$  2,087,225,922 

37  large  towns  

139,965,083 

178,810,787 

318,775,870 

70  cities  and  towns. 
284  small  towns  

1,228,294,260 
123,986,089 

1,177,707,532 
216,017,954 

2,406,001,792 
340,004,043 

354  cities  and  towns     1,352,280,349         1,393,725,486        $2,746,005,835 

Thus  the  land  valuations  of  the  284  small  towns   ($123,- 
986,089)  and  of  the  70  cities  and  large  towns  ($1,228,294,260) 


INCREASING  LAND-VALUES  137 

are  seen  to  be  about  in  the  ratio  of  one  to  ten.  Nor  must  it 
be  overlooked,  that  there  is  a  larger  proportion  of  urban  prop- 
erty in  small  towns 1  than  of  farm  property  in  the  large  ones. 
The  State  census,  which  gives  farm  values  by  themselves,  cor- 
roborates the  above  estimate. 

i  [The  Western   reader  may  observe  that  the   New   England  "small 
town"  is  a  township,  largely  rural. — ED.] 


THE  NEW  YORK  EXCHANGES 

[GOVEBNOB  CHARLES  E.  HUGHES  appointed  in  December,  1908,  a  com- 
mittee consisting  of  business  men  and  bankers  and  the  economist, 
John  B.  Clark,  which  was  known  as  "the  Governor's  commission  on 
speculation  in  securities  and  commodities."  Its  instructions  were  to 
endeavor  to  ascertain  "what  changes,  if  any,  are  advisable  in  the  laws 
of  the  State,  bearing  upon  speculation  in  securities  and  commodities, 
or  relating  to  the  protection  of  investors,  or  with  regard  to  the  in- 
strumentalities and  organizations  used  in  dealings  in  securities  and 
commodities  which  are  the  subject  of  speculation."  The  committee 
reported  June  7,  1909.  The  following  extracts  give  the  greater  part 
of  the  description  of  the  exchanges  and  of  their  actual  operations. 
The  parts  omitted  pertain  very  largely  to  foreign  experience,  to  the 
Committee's  opinions  as  to  the  morality  and  harmfulness  of  the  opera- 
tions, and  to  the  recommendations  of  reformative  legislation.  The 
latter  are  summarized  at  the  end  of  the  extract.] 

In  New  York  City  there  are  two  exchanges  dealing  in  se- 
curities and  seven  in  commodities.  In  addition  there  is  a 
security  market,  without  fixed  membership  or  regular  officers, 
known  as  the  '  '  Curb. ' '  The  exchanges  dealing  in  commodities 
are  incorporated,  while  those  dealing  in  securities  are  not.  .  .  . 

The  New  York  Stock  Exchange.  The  New  York  Stock 
Exchange  is  a  voluntary  association,  limited  to  1100  members, 
of  whom  about  700  are  active,  some  of  them  residents  of  other 
cities.  Memberships  are  sold  for  about  $80,000.  The  Ex- 
change as  such  does  no  business,  merely  providing  facilities 
to  members  and  regulating  their  conduct.  The  governing 
power  is  an  elected  committee  of  forty  members  and  is  plenary 
in  scope.  The  business  transacted  on  the  floor  is  the  pur- 
chase and  sale  of  stocks  and  bonds  of  corporations  and  govern- 
ments. Practically  all  transactions  must  be  completed  by  de- 
livery and  payment  on  the  following  day. 

The  mechanism  of  the  Exchange,  provided  by  its  consti- 

138 


THE  NEW  YORK  EXCHANGES  139 

tution  and  rules,  is  the  evolution  of  more  than  a  century. 
An  organization  of  stockbrokers  existed  here  in  1792,  acquiring 
more  definite  form  in  1817.  It  seems  certain  that  for  a  long 
period  the  members  were  brokers  or  agents  only ;  at  the  present 
time  many  are  principals  as  well  as  agents,  trading  for  them- 
selves as  well  as  for  their  customers.  A  number  of  prominent 
capitalists  hold  memberships  merely  for  the  purpose  of  availing 
themselves  of  the  reduced  commission  charge  which  the  rules 
authorize  between  members. 

The  volume  of  transactions  indicates  that  the  Exchange  is 
to-day  probably  the  most  important  financial  institution  in 
the  world.  In  the  past  decade  the  average  annual  sales  of 
shares  have  been  196,500,000  at  prices  involving  an  annual 
average  turnover  of  nearly  $15,500,000,000 ;  bond  transactions 
averaged  about  $800,000,000.  This  enormous  business  affects 
the  financial  and  credit  interests  of  the  country  in  so  large 
a  measure  that  its  proper  regulation  is  a  matter  of  transcen- 
dent importance.  "While  radical  changes  in  the  mechanism, 
which  is  now  so  nicely  adjusted  that  the  transactions  are  car- 
ried on  with  the  minimum  of  friction,  might  prove  disastrous 
to  the  whole  country,  nevertheless  measures  should  be  adopted 
to  correct  existing  abuses. 

Patrons  of  the  Exchange.  The  patrons  of  the  Exchange 
may  be  divided  into  the  following  groups : 

(1)  Investors,  who  personally  examine  the  facts  relating 
to  the  value  of  securities  or  act  on  the  advice  of  reputable 
and  experienced  financiers,  and  pay  in  full  for  what  they  buy. 

(2)  Manipulators,    whose    connection    with    corporations 
issuing  or  controlling  particular  securities  enables  them  un- 
der certain  circumstances  to  move  the  prices  up  or  down,  and 
who  are  thus  in  some  degree  protected  from  dangers  encoun- 
tered by  other  speculators. 

(3)  Floor  traders,  who  keenly  study  the  markets  and  the 
general  conditions  of  business,  and  acquire  early  information 
concerning  the  changes  which  affect  the  values  of  securities. 
From  their  familiarity  with  the  technique  of  dealings  on  the 


140  THE  NEW  YORK  EXCHANGES 

Exchange,  and  ability  to  act  in  concert  with  others,  and  thus 
manipulate  values,  they  are  supposed  to  have  special  advan- 
tages over  other  traders. 

(4)  Outside    operators    having    capital,    experience,    and 
knowledge  of  the  general  conditions  of  business.     Testimony 
is  clear  as  to  the  result  which,  in  the  long  run,  attends  their 
operations;   commissions   and  interest   charges   constitute   a 
factor  always  working  against  them.     Since  good  luck  and  bad 
luck  alternate  in  time,  the  gains  only  stimulate  these  men  to 
larger  ventures,  and  they  persist  in  them  till  a  serious  or 
ruinous  loss  forces  them  out  of  the  "Street." 

(5)  Inexperienced  persons,  who  act  on  interested  advice, 
"tips,"  advertisements  in  newspapers,  or  circulars  sent  by 
mail,  or  "take  flyers"  in  absolute  ignorance,  and  with  blind 
confidence  in  their  luck.    Almost  without   exception   they 
eventually  lose. 

Marginal  trading.  It  is  unquestionable  that  only  a  small 
part  of  the  transactions  upon  the  Exchange  is  of  an  invest- 
ment character;  a  substantial  part  may  be  characterized  as 
virtually  gambling.  .  .  .  Two  practices  are  prolific  of  losses, 
namely,  buying  active  securities  on  small  margins  and  buying 
unsound  securities,  paying  for  them  in  full.  The  losses  in 
the  former  case  are  due  to  the  quick  turns  in  the  market,  to 
which  active  stocks  are  subject;  these  exhaust  the  margins  and 
call  for  more  money  than  the  purchasers  can  supply.  The 
losses  in  the  latter  case  are  largely  due  to  misrepresentations 
of  interested  parties  and  unscrupulous  manipulations.  .  .  . 
"Pyramiding,"  ...  is  the  use  of  paper  profits  in  stock  trans- 
actions as  a  margin  for  further  commitments.  .  .  .  The  prac- 
tice tends  to  produce  more  extreme  fluctuations  and  more 
rapid  wiping  out  of  margins.  .  .  . 

Short-selling.  Contracts  and  agreements  to  sell,  and  de- 
liver in  the  future,  property  which  one  does  not  possess  at 
the  time  of  the  contract,  are  common  in  all  kinds  of  business. 
The  man  who  has  "sold  short"  must  some  day  buy  in  order  to 
return  the  stock  which  he  has  borrowed  to  make  the  short  sale. 


THE  NEW  YORK  EXCHANGES  141 

Short-sellers  endeavor  to  select  times  when  prices  seem  low 
in  order  to  buy,  their  action  in  both  cases  serving  to  lessen 
advances  and  diminish  declines  of  price.  In  other  words, 
short-selling  tends  to  produce  steadiness  in  prices,  which  is 
an  advantage  to  the  community.  No  other  means  of  restrain- 
ing unwarranted  marking  up  and  down  of  prices  has  been  sug- 
gested to  us.  ... 

Manipulation  of  prices.  A  subject  to  which  we  have  de- 
voted much  time  and  thought  is  that  of  the  manipulation  of 
prices  by  large  interests.  This  falls  into  two  general  classes : 

(1)  That  which  is  resorted  to  for  the  purpose  of  making  a 
market  for  issues  of  new  securities. 

(2)  That  which  is  designed  to  serve  merely  speculative 
purposes  in  the  endeavor  to  make  a  profit  as  the  result  of 
fluctuations  which  have  been  planned  in  advance. 

The  first  kind  of  manipulation  has  certain  advantages, 
and  when  not  accompanied  by  " matched  orders"  is  unobjec- 
tionable per  se.  It  is  essential  to  the  organization  and  carry- 
ing through  of  important  enterprises,  such  as  large  corpora- 
tions, that  the  organizers  should  be  able  to  raise  the  money 
necessary  to  complete  them.  This  can  be  done  only  by  the 
sale  of  securities.  Large  blocks  of  securities,  such  as  are 
frequently  issued  by  railroad  and  other  companies,  cannot 
be  sold  over  the  counter  or  directly  to  the  ultimate  investor, 
whose  confidence  in  them  can,  as  a  rule,  be  only  gradually 
established.  They  must  therefore,  if  sold  at  all,  be  disposed 
of  to  some  syndicate  who  will  in  turn  pass  them  on  to  middle- 
men or  speculators,  until,  in  the  course  of  time,  they  find  their 
way  into  the  boxes  of  investors.  But  prudent  investors  are 
not  likely  to  be  induced  to  buy  securities  which  are  not  reg- 
ularly quoted  on  some  exchange,  and  which  they  cannot  sell, 
or  on  which  they  cannot  borrow  money  at  their  pleasure.  If 
the  securities  are  really  good  and  bids  and  offers  ~bona  fide, 
open  to  all  sellers  and  buyers,  the  operation  is  harmless.  It 
is  merely  a  method  of  bringing  new  investments  into  public 
notice. 


142  THE  NEW  YORK  EXCHANGES 

The  second  kind  of  manipulation  mentioned  is  undoubtedly 
open  to  serious  criticism.  It  has  for  its  object  either  the 
creation  of  high  prices  for  particular  stocks,  in  order  to 
draw  in  the  public  as  buyers  and  to  unload  upon  them  the  hold- 
ings of  the  operators,  or  to  depress  the  prices  and  induce  the 
public  to  sell.  There  have  been  instances  of  gross  and  un- 
justifiable manipulation  of  securities,  as  in  the  case  of  Amer- 
ican Ice  stock.  .  .  . 

"Wash  sales "  and  "matched  orders."  In  the  foregoing 
discussion  we  have  confined  ourselves  to  bona  fide  sales. 
.  .  .  Fictitious  or  so-called  "wash  sales/'  .  .  .  are  forbid- 
den by  the  rules  of  all  the  regular  exchanges,  and 
are  not  enforceable  at  law.  They  are  less  frequent  than 
many  persons  suppose.  A  transaction  must  take  place  upon 
the  floor  of  the  Exchange  to  be  reported,  and  if  not  reported 
does  not  serve  the  purpose  of  those  who  engage  in  it.  If 
it  takes  place  on  the  floor  of  the  Exchange,  but  is  purely  a 
pretense,  the  brokers  involved  run  the  risk  of  detection  and 
expulsion,  which  is  to  them  a  sentence  of  financial  death. 
There  is,  however,  another  class  of  transactions  called 
"matched  orders/'  which  differ  materially  from  those  already 
mentioned,  in  that  they  are  actual  and  enforceable  contracts. 
We  refer  to  that  class  of  transactions,  engineered  by  some 
manipulator,  who  sends  a  number  of  orders  simultaneously  to 
different  brokers,  some  to  buy  and  some  to  sell.  These  brokers, 
without  knowing  that  other  brokers  have  countervailing  or- 
ders from  the  same  principal,  execute  their  orders  upon  the 
floor  of  the  Exchange,  and  the  transactions  become  binding 
contracts;  they  cause  an  appearance  of  activity  in  a  certain 
security  which  is  unreal.  .  .  . 

Listing  requirements.  Before  securities  can  be  bought  and 
sold  on  the  Exchange,  they  must  be  examined.  The  com- 
mittee on  stock  list  is  one  of  the  most  important  parts  of  the 
organization,  since  public  confidence  depends  upon  the  hon- 
esty, impartiality,  and  thoroughness  of  its  work,  While  the 


THE  NEW  YORK  EXCHANGES  143 

Exchange  does  not  guarantee  the  character  of  any  securities, 
or  affirm  that  the  statements  filed  by  the  promoters  are  true, 
it  certifies  that  due  diligence  and  caution  have  been  used 
by  experienced  men  in  examining  them.  Admission  to  the 
list,  therefore,  establishes  a  presumption  in  favor  of  the  sound- 
ness of  the  security  so  admitted.  Any  securities  authorized 
to  be  bought  and  sold  on  the  Exchange,  which  have  not  been 
subjected  to  such  scrutiny,  are  said  to  be  in  the  unlisted  de- 
partment, and  traders  who  deal  in  them  do  so  at  their  own 
risk.  .  .  . 

Wall  Street  as  a  factor.  There  is  a  tendency  on  the  part 
of  the  public  to  consider  "Wall  Street  and  the  New  York  Stock 
Exchange  as  one  and  the  same  thing.  This  is  an  error  arising 
from  their  location.  We  have  taken  pains  to  ascertain  what 
proportion  of  the  business  transactions  on  the  Exchange  is 
furnished  by  New  York  City.  The  only  reliable  sources  of 
information  are  the  books  of  the  commission  houses.  An  in- 
vestigation was  made  of  the  transactions  on  the  Exchange  for 
a  given  day,  when  the  sales  were  1,500,000  shares.  The  re- 
turns showed  that  on  that  day  52  per  cent,  of  the  total  trans- 
actions on  the  Exchange  apparently  originated  in  New  York 
City,  and  48  per  cent,  in  other  localities. 

The  Consolidated  Stock  Exchange.  The  Consolidated  Ex- 
change was  organized  as  a  mining  stock  exchange  in  1875, 
altering  its  name  and  business  in  1886.  Although  of  far  less 
importance  than  the  Stock  Exchange,  it  is  nevertheless  a 
secondary  market  of  no  mean  proportions ;  by  far  the  greater 
part  of  the  trading  is  in  securities  listed  upon  the  main  ex- 
change, and  the  prices  are  based  upon  the  quotations  made 
there.  The  sales  average  about  45,000,000  shares  per  annum. 
The  fact  that  its  members  make  a  speciality  of  ' '  broken  lots, ' ' 
i.e.,  transactions  in  shares  less  than  the  100  unit,  is  used  as 
a  ground  for  the  claim  that  it  is  a  serviceable  institution  for 
investors  of  relatively  small  means.  But  it  is  obvious  that 
jts  utility  as  a  provider  of  capital  for  enterprises  is  exceed- 


144  THE  NEW  YORK  EXCHANGES 

ingly  limited;  and  that  it  affords  facilities  for  the  most  in- 
jurious form  of  speculation — that  which  attracts  persons  of 
small  means. 

It  also  permits  dealing  in  shares  not  listed  in  the  main 
exchange,  and  in  certain  mining  shares,  generally  excluded 
from  the  other.  In  these  cases  it  prescribes  a  form  of  list- 
ing requirements,  but  the  original  listing  of  securities  is  very 
rarely  availed  of.  The  rules  also  provide  for  dealing  in  grain, 
petroleum,  and  other  products.  Wheat  is,  however,  at  present 
the  only  commodity  actively  dealt  in,  and  this  is  due  solely 
to  the  permission  to  trade  in  smaller  lots  than  the  Produce 
Exchange  unit  of  5,000  bushels. 

There  are  1225  members,  about  450  active,  and  the  member- 
ships have  sold  in  recent  years  at  from  $650  to  $2000.  In  gen- 
eral the  methods  of  conducting  business  are  similar  to  those 
of  the  larger  exchange,  and  subject  to  the  same  abuses. 

Very  strained  relations  have  existed  between  the  two  se- 
curity exchanges  since  the  lesser  one  undertook  in  1886  to 
deal  in  stocks.  The  tension  has  been  increased  by  the  methods 
by  which  the  Consolidated  obtains  the  quotations  of  the  other, 
through  the  use  of  the  * 'tickers'7  conveying  them.  It  is  prob- 
able that  without  the  use  of  these  instruments  the  business 
of  the  Consolidated  Exchange  would  be  paralyzed;  yet  the 
right  to  use  them  rests  solely  upon  a  technical  point  in  a 
judicial  decision  which  enjoins  their  removal.  .  .  . 

The  Curb  Market.  There  is  an  unorganized  stock  market 
held  in  the  open  air  during  exchange  hours.  It  occupies  a 
section  of  Broad  Street.  An  enclosure  in  the  center  of  the 
roadway  is  made  by  means  of  a  rope,  within  which  the  traders 
are  supposed  to  confine  themselves,  leaving  space  on  either 
side  for  the  passage  of  street  traffic;  but  during  days  of 
active  trading  the  crowd  often  extends  from  curb  to  curb. 

There  are  about  200  subscribers,  of  whom  probably  150 
appear  on  the  curb  each  day,  and  the  machinery  of  the  opera- 
tions requires  the  presence  of  as  many  messenger  boys  and 
clerks.  Such  obstruction  of  a  public  thoroughfare  is  obviously 


THE  NEW  YORK  EXCHANGES  145 

illegal,  but  no  attempt  has  been  made  by  the  city  authori- 
ties to  disperse  the  crowd  that  habitually  assembles  there. 

This  open-air  market,  we  understand,  is  dependent  for  the 
great  bulk  of  its  business  upon  members  of  the  Stock  Ex- 
change, approximately  85  per  cent,  of  the  orders  executed  on 
the  curb  coming  from  Stock  Exchange  houses.  The  Exchange 
itself  keeps  the  curb  market  in  the  street,  since  it  forbids 
its  own  members  engaging  in  any  transaction  in  any  other 
security  exchange  in  New  York.  If  the  curb  were  put  under 
a  roof  and  organized,  this  trading  could  not  be  maintained. 

Its  utility.  The  curb  market  has  existed  for  upwards  of 
thirty  years,  but  only  since  the  great  development  of  trad- 
ing in  securities  began,  about  the  year  1897,  has  it  become 
really  important.  It  affords  a  public  market-place  where  all 
persons  can  buy  and  sell  securities  which  are  not  listed  on 
any  organized  exchange.  Such  rules  and  regulations  as  exist 
are  agreed  to  by  common  consent,  and  the  expenses  of  main- 
tenance are  paid  by  voluntary  subscription.  An  agency  has 
been  established  by  common  consent  through  which  the  rules 
and  regulations  are  prescribed. 

This  agency  consists  solely  of  an  individual  who,  through 
his  long  association  with  the  curb,  is  tacitly  accepted  as 
arbiter.  From  this  source  we  learn  that  sales  recorded  during 
the  year  1908  were  roughly  as  follows : 

Bonds  $66,000,000 

Stocks,  industrials,   shares 4,770,000 

Stocks,   mining,   shares 41,825,000 

Official  quotations  are  issued  daily  by  the  agency  and 
appear  in  the  public  press.  Corporations  desiring  their  se- 
curities to  be  thus  quoted  are  required  to  afford  the  agency 
certain  information,  which  is,  however,  superficial  and  in- 
complete. There  is  nothing  on  the  curb  which  corresponds 
to  the  listing  process  of  the  Stock  Exchange.  The  latter, 
while  not  guaranteeing  the  soundness  of  the  securities,  gives 
a  prima  facie  character  to  those  on  the  list,  since  the  stock- 
list  committee  takes  some  pains  to  learn  the  truth.  The  de- 
10 


146  THE  NEW  YORK  EXCHANGES 

cisions  of  the  agent  of  the  curb  are  based  on  insufficient  data, 
and  since  much  of  the  work  relates  to  mining  schemes  in  dis- 
tant States  and  Territories,  and  foreign  countries,  the  mere 
fact  that  a  security  is  quoted  on  the  curb  should  create  no 
presumption  in  its  favor;  quotations  frequently  represent 
"wash  sales,"  thus  facilitating  swindling  enterprises. 

Evils  of  unorganized  status.  Bitter  complaints  have 
reached  us  of  frauds  perpetrated  upon  confiding  persons,  who 
have  been  induced  to  purchase  mining  shares  because  they  are 
quoted  on  the  curb;  these  are  frequently  advertised  in  news- 
papers and  circulars  sent  through  the  mails  as  so  quoted. 
Some  of  these  swindles  have  been  traced  to  their  fountain 
heads  by  the  Post-office  Department,  to  which  complaint  has 
been  made;  but  usually  the  swindler,  when  cornered,  has 
settled  privately  with  the  individual  complainant,  and  then 
the  prosecution  has  failed  for  want  of  testimony.  Mean- 
while the  same  operations  may  continue  in  many  other  places, 
till  the  swindle  becomes  too  notorious  to  be  profitable. 

Notwithstanding  the  lack  of  proper  supervision  and  con- 
trol over  the  admission  of  securities  to  the  privilege  of  quo- 
tation, some  of  them  are  meritorious,  and  in  this  particu- 
lar the  curb  performs  a  useful  function.  The  existence  of  the 
cited  abuses  does  not,  in  our  judgment,  demand  the  abolition 
of  the  curb  market.  Regulation  is,  however,  imperative.  To 
require  an  elaborate  organization  similar  to  that  existing 
in  the  Exchanges  would  result  in  the  formation  of  another 
curb  free  from  such  restraint. 

As  has  been  stated,  about  85  per  cent,  of  the  business  of 
the  curb  comes  through  the  offices  of  members  of  the  New  York 
Stock  Exchange,  but  a  provision  of  the  constitution  of  that 
exchange  prohibits  its  members  from  becoming  members  of,  or 
dealing  on,  any  other  organized  stock  exchange  in  New  York. 
Accordingly,  operators  on  the  curb  market  have  not  attempted 
to  form  an  organization.  The  attitude  of  the  Stock  Exchange 
is  therefore  largely  responsible  for  the  existence  of  such 
abuses  as  result  from  the  want  of  organization  of  the  curb 


THE  NEW  YORK  EXCHANGES  147 

market.  The  brokers  dealing  on  the  latter  do  not  wish  to 
lose  their  best  customers,  and  hence  they  submit  to  these 
irregularities  and  inconveniences. 

Responsibility  of  the  Exchange.  Some  of  the  members  of 
the  Exchange  dealing  on  the  curb  have  apparently  been  satis- 
fied with  the  prevailing  conditions,  and  in  their  own  selfish 
interests  have  maintained  an  attitude  of  indifference  toward 
abuses.  We  are  informed  that  some  of  the  most  flagrant  cases 
of  discreditable  enterprises  finding  dealings  on  the  curb 
were  promoted  by  members  of  the  New  York  Stock  Exchange. 
The  present  apparent  attitude  of  the  Exchange  toward  the 
curb  seems  to  us  clearly  inconsistent  with  its  moral  obliga- 
tions to  the  community  at  large.  Its  governors  have  fre- 
quently avowed  before  the  committee  a  purpose  to  cooperate 
to  the  greatest  extent  for  the  remedy  of  any  evils  found  to 
exist  in  stock  speculation.  The  curb  market  as  at  present  con- 
stituted affords  ample  opportunity  for  the  exercise  of  such 
helpfulness.  .  .  . 

Bucket  shops.  Bucket  shops  are  ostensibly  brokerage  of- 
fices, where,  however,  commodities  and  securities  are  neither 
bought  nor  sold  in  pursuance  of  customer's  orders,  the  transac- 
tions being  closed  by  the  payment  of  gains  or  losses,  as  deter- 
mined by  price  quotations.  In  other  words,  they  are  merely 
places  for  the  registration  of  bets  or  wagers ;  their  machinery 
is  generally  controlled  by  the  keepers,  who  can  delay  or  manip- 
ulate the  quotations  at  will. 

The  law  of  this  State,  which  took  effect  September  1,  1908, 
makes  the  keeping  of  a  bucket  shop  a  felony,  punishable  by  fine 
and  imprisonment,  and  in  the  case  of  corporations,  on  second 
offenses  by  dissolution  or  expulsion  from  the  State.  In 
the  case  of  individuals  the  penalty  for  the  second  offense  is  the 
same  as  for  the  first.  These  penalties  are  imposed  upon  the 
theory  that  the  practice  is  gambling;  but  in  order  to  estab- 
lish the  fact  of  gambling  it  is  necessary,  under  the  New  York 
law,  to  show  that  both  parties  to  the  trade  intended  that  it 
should  be  settled  by  the  payment  of  differences,  and  not  by 


148  THE  NEW  YORK  EXCHANGES 

delivery  of  property.  Under  the  law  of  Massachusetts  it  is 
necessary  to  show  only  that  the  bucket-shop  keeper  so  intended. 
The  Massachusetts  law  provides  heavier  penalties  for  the 
second  offense  than  for  the  first,  and  makes  it  a  second  offense 
if  a  bucket  shop  is  kept  open  after  the  first  conviction.  .  .  . 
There  has  been  a  sensible  diminution  in  the  number  of  bucket 
shops  in  New  York  since  the  act  of  1908  took  effect,  but  there 
is  still  much  room  for  improvement. 

Continuous  quotations  of  prices  from  an  exchange  are  in- 
dispensable to  a  bucket  shop,  and  when  such  quotations  are 
cut  off  this  gambling  ends;  therefore  every  means  should  be 
employed  to  cut  them  off.  .  .  . 

The  major  commodity  exchanges.  Of  the  seven  commodity 
exchanges  of  New  York,  three  dealing  with  produce,  cotton, 
and  coffee  are  classed  as  of  major  importance ;  two  organized 
by  dealers  in  fruit  and  hay,  are  classed  as  minor;  and  two 
others,  the  Mercantile  (concerned  with  dairy  and  poultry  prod- 
ucts) and  the  Metal  (concerned  with  mining  products)  are 
somewhat  difficult  of  classification,  as  will  appear  hereafter. 
The  business  transacted  on  the  three  major  exchanges  is 
mainly  speculative,  consisting  of  purchases  and  sales  for  future 
delivery  either  by  those  who  wish  to  eliminate  risks  or  by 
those  who  seek  to  profit  by  fluctuations  in  the  value  of  prod- 
ucts. "Cash"  or  "spot"  transactions  are  insignificant  in 
volume. 

The  objects,  as  set  forth  in  the  charters,  are  to  provide 
places  for  trading,  establish  equitable  trade  principles  and 
usages,  obtain  and  disseminate  useful  information,  adjust  con- 
troversies, and  fix  by-laws  and  rules  for  these  purposes. 

Trading  in  differences  of  price  and  "wash  sales"  are 
strictly  prohibited  under  penalty  of  expulsion.  All  con- 
tracts of  sale  call  for  delivery,  and  unless  balanced  and  can- 
celled by  equivalent  contracts  of  purchase,  must  be  finally 
settled  by  a  delivery  of  the  merchandise  against  cash  payment 
of  its  value  as  specified  in  the  terms  of  the  contract;  but 
the  actual  delivery  may  be  waived  by  the  consent  of  both 


THE  NEW  YORK  EXCHANGES  149 

parties.  Possession  is  for  the  most  part  transferred  from 
the  seller  to  the  purchaser  by  warehouse  receipts  entitling  the 
holder  to  the  ownership  of  the  goods  described. 

Dealing  in  "futures."  The  selling  of  agricultural  prod- 
ucts for  future  delivery  has  been  the  subject  of  much  con- 
troversy in  recent  years.  A  measure  to  prohibit  such  selling, 
known  as  the  Hatch  Anti-Option  Bill,  was  debated  at  great 
length  in  Congress  during  the  years  1892,  1893  and  1894. 
Although  it  passed  both  House  and  Senate  in  different  forms, 
it  was  finally  abandoned  by  common  consent.  Similar 
legislation  in  Germany  has  proved  injurious;  and  when  at- 
tempted by  our  States  it  has  either  resulted  detrimentally  or 
been  inoperative.  The  subject  was  exhaustively  considered 
by  the  Industrial  Commission  of  Congress  which  in  1901  made 
an  elaborate  report  (volume  VI),  showing  that  selling  for 
future  delivery,  based  upon  a  forecast  of  future  conditions 
of  supply  and  demand,  is  an  indispensable  part  of  the  world's 
commercial  machinery,  by  which  prices  are,  as  far  as  pos- 
sible, equalized  throughout  the  year  to  the  advantage  of  both 
producer  and  consumer.  The  subject  is  also  treated  with 
clearness  and  impartiality  in  the  Cyclopedia  of  American 
Agriculture,  in  an  article  on  "  Speculation  and  Farm 
Prices";  where  it  is  shown  that  since  the  yearly  supply  of 
wheat,  for  example,  matures  within  a  comparatively  short 
period  of  time  somebody  must  handle  and  store  the  great 
bulk  of  it  during  the  interval  between  production  and  con- 
sumption. Otherwise  the  price  will  be  unduly  depressed  at 
the  end  of  one  harvest  and  correspondingly  advanced  before 
the  beginning  of  another. 

Buying  for  future  delivery  causes  advances  in  prices;  sell- 
ing short  tends  to  restrain  inordinate  advances.  In  each 
case  there  must  be  a  buyer  and  a  seller  and  the  interaction 
of  their  trading  steadies  prices.  Speculation  thus  brings 
into  the  market  a  distinct  class  of  people  possessing  capital 
and  special  training  who  assume  the  risks  of  holding  and 
distributing  the  proceeds  of  the  crops  from  one  season  to 


150  THE  NEW  YORK  EXCHANGES 

another  with  the  minimum  of  cost  to  producer  and  con- 
sumer. 

Hedging.  A  considerable  part  of  the  business  done  by 
these  exchanges  consists  of  "  hedging. "  This  term  is  applied 
to  the  act  of  a  miller,  for  example,  who  is  under  contract 
to  supply  a  given  quantity  of  flour  monthly  throughout  the 
year.  In  order  to  insure  himself  against  loss  he  makes  a 
contract  with  anybody  whom  he  considers  financially  re- 
sponsible to  supply  him  wheat  at  times  and  in  the  quantities 
needed.  He  "hedges"  against  a  possible  scarcity  and  con- 
sequent rise  in  the  price  of  wheat.  If  the  miller  were  re- 
stricted in  his  purchases  to  persons  in  the  actual  possession 
of  wheat  at  the  time  of  making  the  contract  he  would  be 
exposed  to  monopoly  prices.  If  the  wheat  producer  were 
limited  in  his  possibilities  of  sale  to  consumers  only,  he  would 
be  subjected  to  the  depressing  effects  of  a  glut  in  the  market 
in  'June  and  September,  at  times  of  harvest. 

To  the  trader,  manufacturer,  or  exporter,  the  act  of  trans- 
ferring the  risk  of  price  fluctuations  to  other  persons  who 
are  willing  to  assume  it,  has  the  effect  of  an  insurance.  It 
enables  him  to  use  all  of  his  time  and  capital  in  management 
of  his  own  business  instead  of  devoting  some  part  of  them 
to  contingencies  arising  from  unforeseen  crop  conditions. 

Alternative  contracts,  margins,  settlements.  In  order  to 
eliminate  the  risk  of  a  shortage  of  specific  grades  of  the  mer- 
chandise thus  traded  in,  contracts  generally  permit  the  delivery 
of  alternative  grades,  within  certain  limits,  at  differential 
prices;  and  if  the  grade  to  be  delivered  be  not  suitable  for 
the  ultimate  needs  of  the  purchaser,  it  can  under  ordinary  cir- 
cumstances be  exchanged  for  the  grade  needed,  by  the  pay- 
ment of  the  differential.  It  is  true  that  in  this  exchange  of 
grades  there  is  sometimes  a  loss  or  a  profit,  owing  to  some 
unexpected  diminution  or  excess  of  supply  of  the  particular 
grade  wanted,  due  to  the  weather  or  other  natural  causes. 

Deposits  of  cash  margins  may  be  required  mutually  by 
members  at  the  time  of  making  contracts,  and  subsequent 


THE  NEW  YORK  EXCHANGES  151 

additional  ones  if  market  fluctuations  justify.  Dealings  for 
outsiders  are  usually  upon  a  10  per  cent,  margin;  obviously 
if  this  margin  were  increased  generally,  say  to  20  per  cent., 
a  considerable  part  of  the  criticism  due  to  losses  in  specula- 
tion, particularly  as  to  the  Cotton  Exchange,  would  be  elim- 
inated. 

The  major  part  of  the  transactions  are  adjusted  by  clear- 
ing systems,  the  method  most  prevalent  being  "ring  settle- 
ments," by  which  groups  of  members  having  buying  and 
selling  contracts  for  identical  quantities  offset  them  against 
each  other,  canceling  them  upon  the  payment  of  the  differences 
in  prices. 

The  Produce  Exchange.  The  New  York  Produce  Exchange 
was  chartered  by  the  Legislature  in  1862,  under  the  style  of 
the  "New  York  Commercial  Association. "  The  charter  has 
been  amended  several  times;  in  1907  dealing  in  securities, 
as  well  as  in  produce,  was  authorized.  There  are  over  2000 
members,  but  a  large  number  are  inactive.  Some  members 
are  also  connected  with  the  Stock  and  Cotton  Exchanges.  The 
business  includes  dealing  in  all  grains,  cottonseed  oil,  and 
a  dozen  or  more  other  products ;  wheat  is,  however,  the  chief 
subject  of  trading,  and  part  thereof  consists  of  hedging  by 
and  for  millers,  exporters,  and  importers,  both  here  and 
abroad.  The  quantity  of  wheat  received  in  New  York  in  the 
five  years  1904-1908  averaged  21,000,000  bushels  annually. 
No  record  of  "cash"  sales  is  kept.  The  reported  sales  of 
"futures"  show  in  five  years  an  annual  average  of  480,000,000 
bushels,  the  year  1907  showing  610,000,000.  Although  some 
of  these  sales  were  virtually  bets  on  price  differences,  all  of 
them  were  contracts  enforceable  at  law.  .  .  . 

The  Cotton  Exchange.  The  New  York  Cotton  Exchange 
was  incorporated  by  a  special  charter  in  1871.  Its  member- 
ship is  limited  to  450.  It  is  now  the  most  important  cotton 
market  in  the  world,  as  it  provides  the  means  for  financing 
about  80  per  cent,  of  the  crop  of  the  United  States  and  is 
the  intermediary  for  facilitating  its  distribution.  In  fact,  it 


152  THE  NEW  YORK  EXCHANGES 

is  the  world's  clearing  house  for  the  staple.  Traders  and 
manufacturers  in  Japan,  India,  Egypt,  Great  Britain,  Ger- 
many, France,  and  Spain,  as  well  as  the  United  States,  buy 
and  sell  here  daily  and  the  business  is  still  increasing. 

Cotton  is  the  basis  of  the  largest  textile  industry  in  the 
world.  The  business  is  conducted  on  a  gigantic  scale  in 
many  countries,  by  means  of  vast  capital,  complicated  ma- 
chinery, and  varied  processes  involving  considerable  periods  of 
time  between  the  raw  material  and  the  finished  product. 
Selling  for  future  delivery  is  necessary  to  the  harmonious  and 
uninterrupted  movement  of  the  staple  from  producer  to  con- 
sumer. Nearly  all  the  trading,  beginning  with  that  of  the 
planter,  involves  short  selling.  The  planter  sells  to  the  dealer, 
the  dealer  to  the  spinner,  the  spinner  to  the  weaver,  the  weaver 
to  the  cloth  merchant,  before  the  cotton  of  any  crop  year  is 
picked.  Dealers  who  take  the  risk  of  price  fluctuations  insure 
all  the  other  members  of  this  trading  chain  against  losses 
arising  therefrom  and  spare  them  the  necessity  of  themselves 
being  speculators  in  cotton.  The  risks  connected  with  rais- 
ing and  marketing  cotton  must  be  borne  by  some  one,  and 
this  is  now  done  chiefly  by  a  class  who  can  give  their  un- 
divided attention  to  it. 

Grading  cotton.  The  grading  of  cotton  is  the  vital  fea- 
ture of  the  trade.  When  no  grade  is  specified  in  the  con- 
tract, it  is  construed  to  be  middling.  There  are  now  eighteen 
grades  ranging  from  middling  stained  up  to  fair.  This  classi- 
fication differs  somewhat  from  that  of  other  markets,  and 
last  January  the  Department  of  Agriculture  at  Washington 
took  up  the  subject  of  standardizing  the  various  grades  for 
all  American  markets.  The  New  York  Cotton  Exchange  par- 
ticipated in  this  work ;  a  standard  was  thus  adopted,  the  types 
of  which  were  supplied  by  its  classification  committee.  It 
varies  but  little  from  the  one  previously  in  use  here.  The 
samples  chosen  to  represent  the  several  types  are  now  sealed, 
in  possession  of  the  Department  of  Agriculture,  awaiting  the 
action  of  Congress. 


THE  NEW  YORK  EXCHANGES  153 

The  cotton  plant  is  much  exposed  to  vicissitudes  of  the 
weather.  A  single  storm  may  change  the  grade  of  the  crop  in 
large  sections  of  the  country.  It  becomes  necessary  therefore 
to  provide  some  protection  for  traders  who  have  made  con- 
tracts to  deliver  a  particular  grade  which  has  become  scarce 
by  an  accident  which  could  not  be  foreseen.  For  this  pur- 
pose alternative  deliveries  are  allowed  by  the  payment  of  cor- 
responding price  differentials,  fixed  by  a  committee  of  the 
Exchange  twice  annually,  in  the  months  of  September  and 
November. 

Settlements,  sales,  speculation.  Settlements  of  trades  may 
be  made  individually,  or  by  groups  of  members,  or  through 
a  clearing  system,  the  agency  of  which  is  a  designated  bank 
near  the  Exchange.  No  record  is  kept  of  the  transactions, 
but  it  is  probable  that  for  a  series  of  years  the  sales  have 
averaged  fully  50,000.000  bales  annually.  There  have  been 
in  the  past  instances  of  excessive  and  unreasonable  specula- 
tion upon  the  Cotton  Exchange,  notably  the  Sully  speculation 
of  1904.  We  believe  that  there  is  also  a  great  deal  of  specu- 
lation of  the  gambling  type.  .  .  . 

The  Coffee  Exchange.  The  Coffee  Exchange  was  incor- 
porated by  special  charter  in  1885.  It  has  320  members,  about 
80  per  cent,  active.  It  was  established  in  order  to  supply  a 
daily  market  where  coffee  could  be  bought  and  sold  and  to  fix 
quotations  therefor,  in  distinction  from  the  former  method  of 
alternate  glut  and  scarcity,  with  wide  variations  in  price — in 
short,  to  create  stability  and  certainty  in  trading  in  an  im- 
portant article  of  commerce.  This  it  has  accomplished;  and 
it  has  made  New  York  the  most  important  primary  coffee 
market  in  the  United  States.  But  there  has  been  recently 
introduced  a  non-commercial  factor  known  as  "valorization," 
a  governmental  scheme  of  Brazil,  by  which  the  public  treasury 
has  assumed  to  purchase  and  hold  a  certain  percentage  of  the 
coffee  grown  there,  in  order  to  prevent  a  decline  of  the  price. 
This  has  created  abnormal  conditions  in  the  coffee  trade. 

All  transactions  must   be  reported  by  the  seller  to  tiie 


154  THE  NEW  YORK  EXCHANGES 

superintendent  of  the  Exchange,  with  an  exact  statement  of 
the  time  and  terms  of  delivery.  The  record  shows  that  the 
average  annual  sales  in  the  past  five  years  have  been  in  excess 
of  16,000,000  bags  of  250  pounds  each. 

Contracts  may  be  transferred  or  offset  by  voluntary  clear- 
ings by  groups  of  members.  There  is  no  general  clearing 
system.  There  is  a  commendable  rule  providing  that,  in  case 
of  a  "  corner, "  the  officials  may  fix  a  settlement  price  for 
contracts  to  avoid  disastrous  failures. 

The  other  exchanges.  Of  the  exchanges  which  we  have 
classed  as  minor,  those  dealing  with  fruit  and  hay  appear 
to  be  in  nowise  concerned  with  speculation.  No  sales  what- 
ever are  conducted  on  them,  all  transactions  being  consum- 
mated either  in  the  places  of  business  of  the  members  or  at 
public  auction  to  the  highest  bidder.  No  quotations  are  made 
or  published. 

In  the  case  of  the  other  two  commodity  exchanges,  the 
Mercantile  and  the  Metal,  new  problems  arise.  Although  quo- 
tations of  the  products  appertaining  to  these  exchanges  are 
printed  daily  in  the  public  press,  they  are  not  a  record  of 
actual  transactions  amongst  members,  either  for  immediate  or 
future  delivery. 

It  is  true  that  on  the  Mercantile  Exchange  there  are 
some  desultory  operations  in  so-called  future  contracts  in 
butter  and  eggs,  the  character  of  which  is,  however,  revealed 
by  the  fact  that  neither  delivery  by  the  seller  nor  acceptance 
by  the  buyer  is  obligatory;  the  contract  may  be  voided  by 
either  party  by  payment  of  a  maximum  penalty  of  5  per 
cent.  There  are  nominal  "calls"  but  trading  is  confessedly 
rare.  The  published  quotations  are  made  by  a  committee,  the 
membership  of  which  is  changed  periodically.  That  com- 
mittee is  actually  a  close  corporation  of  the  buyers  of  butter 
and  eggs,  and  the  prices  really  represent  their  views  as  to 
the  rates  at  which  the  trade  generally  should  be  ready  to  buy 
from  the  farmers  and  country  dealers. 

Similar,  but  equally  deceptive,  is  the  method  of  making 


THE  NEW  YORK  EXCHANGES  155 

quotations  on  the  Metal  Exchange.  In  spite  of  the  apparent 
activity  of  dealings  in  this  organization  in  published  market 
reports,  there  are  no  actual  sales  on  the  floor  of  the  Metal 
Exchange,  and  we  are  assured  that  there  have  been  none  for 
several  years.  Prices  are,  however,  manipulated  up  and  down 
by  a  quotation  committee  of  three,  chosen  annually,  who  rep- 
resent the  great  metal  selling  agencies  as  their  interest  may 
appear,  affording  facilities  for  fixing  prices  on  large  contracts, 
mainly  for  the  profit  of  a  small  clique,  embracing,  however, 
some  of  the  largest  interests  in  the  metal  trade. 

These  practices  result  in  deceiving  buyers  and  sellers.  The 
making  and  publishing  of  quotations  for  commodities  or  se- 
curities by  groups  of  men  calling  themselves  an  exchange, 
or  by  any  other  similar  title,  whether  incorporated  or  not, 
should  be  prohibited  by  law,  where  such  quotations  do  not 
fairly  and  truthfully  represent  any  ~bona  fide  transactions  on 
such  exchanges.  Under  present  conditions,  we  are  of  the 
opinion  that  the  Mercantile  and  Metal  Exchanges  do  actual 
harm  to  producers  and  consumers,  and  that  their  charters 
should  be  repealed. 

Some  conclusions.1  Commodities  are  not  held  for  per- 
manent investment,  but  are  bought  and  sold  primarily  for 
the  purpose  of  commercial  distribution;  on  the  other  hand, 
securities  are  primarily  held  for  investment;  but  both  are 
subjects  of  speculation.  Speculation  consists  in  forecasting 
changes  of  value  and  buying  or  selling  in  order  to  take  ad- 
vantage of  them ;  it  may  be  wholly  legitimate,  pure  gambling, 
or  something  partaking  of  the  qualities  of  both.  In  some 
form  it  is  a  necessary  incident  of  productive  operations. 
When  carried  on  in  connection  with  either  commodities  or 
securities  it  tends  to  steady  their  prices.  Where  speculation 
is  free,  fluctuations  in  prices,  otherwise  violent  and  disastrous, 
ordinarily  become  gradual  and  comparatively  harmless. 
Moreover,  so  far  as  commodities  are  concerned,  in  the  absence 

i[The  following  general  views  of  the  Commission  are  given  near  the 
beginning  of  the  report,  p.  3.J 


156  THE  NEW  YORK  EXCHANGES. 

of  speculation,  merchants  and  manufacturers  would  them- 
selves be  forced  to  carry  the  risks  involved  in  changes  of 
prices  and  to  bear  them  in  the  intensified  condition  resulting 
from  sudden  and  violent  fluctuations  in  value.  Risks  of  this 
kind  which  merchants  and  manufacturers  still  have  to  assume 
are  reduced  in  amount,  because  of  the  speculation  prevailing ; 
and  many  of  these  milder  risks  they  are  enabled,  by  "hedg- 
ing," to  transfer  to  others.  For  the  merchant  or  manufac- 
turer the  speculator  performs  a  service  which  has  the  effect  of 
insurance. 

In  law,  speculation  becomes  gambling,  when  the  trading 
which  it  involves  does  not  lead,  and  is  not  intended  to  lead, 
to  the  actual  passing  from  hand  to  hand  of  the  property  that 
is  dealt  in.  ... 

The  problem  to  be  solved,  The  problem  wherever  specu- 
lation is  strongly  rooted  is  to  eliminate  that  which  is  waste- 
ful and  morally  destructive,  while  retaining  and  allowing  free 
play  to  that  which  is  beneficial.  The  difficulty  in  the  solu- 
tion of  the  problem  lies  in  the  practical  impossibility  of 
distinguishing  what  is  virtually  gambling  from  legitimate 
speculation.  The  most  fruitful  policy  will  be  found  in  meas- 
ures which  will  lessen  speculation  by  persons  not  qualified 
to  engage  in  it.  In  carrying  out  such  a  policy  exchanges  can 
accomplish  more  than  legislatures. 

[The  conclusions  of  the  committee  were  "directed  to  the  removal  of 
various  evils,"  and  "to  the  reduction  of  the  volume  of  speculation  of 
the  gambling  type."  The.  committee  repeatedly  emphasizes  the  diffi- 
culty of  distinguishing  by  law  between  proper  and  improper  practices. 
It  is  impressed  with  the  results  of  the  German  law  of  1896  which 
failed  to  reach  the  abuses  and  which  was  modified  and  largely  repealed 
by  the  law  of  1908.  The  committee  repeatedly  declares  that  the 
exchange,  with  plenary  power  over  members  and  their  operations,  could 
provide  correctives  and  should  do  so.  While  it  makes  a  few  specific 
recommendations  for  legislation,  the  conclusions  are  in  large  part 
negative  and  conservative,  as  compared  with  popular  views  on  the 
subject.] 


DIFFERENCES  IN  EFFICIENCY  OF  WEAVERS 

[THE  Tariff  Board,  in  the  study  of  the  cost  of  producing  woolen 
cloths,  observed  in  the  weavers  widely  "varying  degrees  of  efficiency 
in  the  same  class  of  goods  (exclusive  of  learners)."  A  letter  was 
sent  to  manufacturers,  asking:  "What  is  wrong  in  the  mental  or 
physical  makeup  or  application  of  the  inefficient  weavers  and  on  the 
other  hand  what  are  the  qualifications  of  good  weavers?" 

The  replies,  a  portion  of  which  are  here  given,  may  be  taken  849 
throwing  light  on  the  differences  in  the  efficiency  of  workers  in  gen- 
eral, whether  in  the  same  trade,  or  in  different  trades.  (Report  of 
Tariff  Board  on  Schedule  K,  transmitted  to  Congress,  Dec.  20,  1911. 
Printed  for  the  use  of  the  Committee  on  Finance.  Selections  from  pp. 
1065-1074.)] 

Establishment  No.  1.  The  loom  is  seldom  out  of  order  and 
is  generally  fixed  within  a  very  short  time,  an  hour  or  two  at 
the  most.  The  warp  and  filling  having  been  made  in  large  lots 
in  our  worsted  mill  will  run  exactly  as  well  in  one  loom  as  in 
another.  The  weaver  varies.  Some  weavers  have  that  pe- 
culiar knack  of  watching  their  warp  and  putting  their  bobbins 
in  the  shuttles  carefully,  and  always  alert  to  notice  anything 
that  is  going  wrong,  and  are  onto  the  many  tricks  of  the  trade 
that  make  their  work  run  easily.  Others  are  careless,  cannot 
do  any  of  the  many  little  things  that  make  their  work  run 
easily,  and  hence  have  to  do  a  great  deal  more  stopping  than 
a  good  weaver.  At  one  time  we  had  a  young  woman  who 
did  more  and  better  work  than  any  of  the  other  men  and 
women  weavers  in  the  mill.  Quite  often  we  do  not  have  the 
proper  loom  to  weave  with  the  greatest  efficiency  certain  cloths, 
but  it  would  not  pay  us  to  change,  as  possibly  the  next  orders 
might  require  that  very  loom  to  weave  efficiently  on. 

Establishment  No.  2.  Most  of  our  weavers  are  either  per- 
sons too  old  to  learn  any  new  trade  and  have  lost  all  ambition 

157 


158  DIFFERENCES  IN  EFFICIENCY 

and  are  perfectly  content  to  jog  along  from  day  to  day 
with  not  much  worry  for  the  future,  or  floaters,  who  drift 
from  one  mill  to  another,  who  will  get  off  an  exceptional 
week's  production,  but  pay  day  will  see  them  on  the  road 
once  more,  bound  for  some  other  town.  Spinners  are  even 
more  difficult  to  procure,  and  in  brief  labor  conditions  have 
reached  a  stage  where  we  are  forced  to  take  any  one  who 
applies  in  order  to  keep  our  machinery  running. 

Establishment  No.  3.  It  is  more  difficult  to  weed  out  the 
poor  weavers  in  a  mill  located  in  a  small  community,  as 
there  is  no  waiting  list  to  select  from  to  fill  their  places,  and 
vacancies  are  usually  filled  with  learners,  whereas  in  a  larger 
place,  having  a  number  of  weaving  plants,  it  is  practicable 
to  insist  on  a  maximum  production,  owing  to  the  supply  of 
experienced  weavers  near  at  hand  to  draw  upon. 

A  good  weaver — that  is,  one  who  can  produce  the  maximum 
amount  of  good  cloth — must  be  quick,  with  nimble  fingers, 
good  eyesight,  clean  and  methodical,  and  anxious  to  earn  and 
receive  a  good  wage,  and  willing  to  pay  the  price  by  being 
on  the  job  all  the  time.  The  poor  weaver  is  sure  to  lack 
some  of  these  qualifications. 

Establishment  No.  4.  The  weavers  (and  in  fact  all  our 
employees)  are  not  nearly  as  efficient  and  as  steady  as  they 
were  some  years  ago,  and  we  do  not  get  as  good  work  as  we 
used  to.  The  new  labor  that  we  get  is  largely  Polish,  as  com- 
pared with  English,  German,  and  Irish  a  few  years  since. 
The  Polish  are  not  nearly  as  good  a  class  of  help  as  the 
former,  and  they  are  not  as  well  educated.  Then,  we  have 
more  changes  of  employees  than  we  used  to ;  consequently,  we 
are  continually  breaking  in  new  help,  which  tends  greatly  to 
reduce  the  efficiency. 

Establishment  No.  6.  Under  normal  trade  conditions  there 
is  a  scarcity  of  good  weavers,  and  help  have  to  be  taken  on 
who  are  ignorant  of  our  requirements,  and  thus  more  or  less 
incompetent.  Recognition  of  this  fact  has  stimulated  the 
adoption  of  automatic  devices  on  looms  for  the  prevention  of 


DIFFERENCES  IN  EFFICIENCY  159 

bad  work.  Many  persons  following  the  weaver's  craft  have 
missed  their  calling;  nature  intended  them  for  other  occupa- 
tions; the  deft  hand  and  alert  eye,  so  essential  to  successful 
weaving,  are  plainly  lacking.  They  mean  well,  but  their 
work  gets  ahead  of  them,  and  they  spend  their  days  in  futile 
efforts  to  catch  up ;  before  one  fault  is  corrected  another  ap- 
pears, and  it  is  from  such  operatives  that  most  of  the  im- 
perfect cloth  comes. 

Weavers  in  dress-goods  mills,  particularly  where  there  are 
automatic  looms,  run  more  looms  than  in  men  's-wear  mills,  and 
when  the  latter  are  busy  they  draw  heavily  upon  dress-goods 
organizations  for  their  supply  of  weavers.  In  turn  the  dress- 
goods  mills  draw  on  the  cotton  mills  for  recruits,  and  it  takes 
several  months  for  a  cotton-weaver  to  become  a  good  worsted 
weaver.  Meanwhile  efficiency  is  not  the  highest. 

The  class  of  weavers  is  numerous  that  prefers  easy,  com- 
fortable work  with  medium  wages  rather  than  work  of  higher 
grade  and  better  pay.  This  lack  of  exertion  and  absence  of 
ambition  on  their  part  tends  to  keep  down  efficiency. 

The  weavers  do  not  all  possess  equal  skill  or  physical 
power.  In  our  employ  are  many  weavers  forty-five  years  and 
older,  who  are  still  producing  good  cloth,  but  whose  product  is 
being  impaired  by  advancing  years.  Some  of  our  most  compe- 
tent weavers  are  women  twenty  to  thirty  years  of  age,  who 
right  in  the  stage  of  their  greatest  efficiency  relinquish  their 
occupation  and  get  married.  In  Europe  weavers  are  more 
contented  with  their  vocation  and  plan  to  remain  in  it  all 
their  lives.  In  numberless  instances  entire  families  for  genera- 
tions past  have  all  been  weavers,  and  such  operatives  acquire  a 
measure  of  dexterity  and  skill  which  is  not  so  fully  met  with 
in  American  mills.  Neither  is  it  the  rule  for  young  women 
to  give  up  their  mill  occupation  upon  marriage ;  most  of  them 
continue  their  mill  employment  for  several  years  after. 

Establishment  No.  9.  As  to  the  qualities  of  good  weavers, 
it  is  hard  to  describe  them.  The  essential  qualities  are 
alertness  and  dexterity,  and  as  the  work  is  not  heavy,  requir- 


160  DIFFERENCES  IN  EFFICIENCY 

ing  no  great  physical  strength,  women  are  often  as  good 
weavers  as  men,  and  sometimes  better.  Above  all  things,  how- 
ever, a  weaver  must  have  years  of  training  in  weaving  all 
the  different  kinds  of  fabrics  before  he  or  she  can  really 
be  called  a  good  weaver.  Under  the  hitherto  prevalent  violent 
fluctuations  in  the  industry  such  life-long  training  has  only 
been  possible  in  very  exceptional  cases  and  in  such  places 
where  local  conditions  have  been  more  like  those  in  Europe. 
This  has  again  been  brought  to  our  special  notice  during  the 
past  summer.  When  the  mill  was  running  part  time,  many 
of  our  best  and  most  energetic  and  ambitious  workers,  whom 
we  had  with  great  trouble  educated  for  our  special  kind  of 
work  and  who  were  dissatisfied  at  not  making  full  wages, 
sought  other  industries.  Now,  when  we  are  running  full 
time  again,  we  find  we  have  only  the  poorer  help  and  are  al- 
most in  as  bad  a  position  as  when  we  first  started.  It  is 
impossible  to  repeat  too  often  the  great  advantage  possessed 
by  the  older  European  centers  of  the  woolen  and  worsted 
industry.  The  operatives  in  those  towns,  even  if  they  earn 
less  than  they  might  do  elsewhere,  will  not  break  up  their  as- 
sociations and  move  away  as  they  do  here.  They  are  attached 
to  their  work  and  to  their  homes.  Here  the  operatives  have 
scarcely  time  to  become  domiciled  before  business  is  subjected 
to  a  violent  setback  and  they  are  forced  to  seek  work  in  other 
towns.  The  disadvantages  of  all  this  for  mill  owners  are  two- 
fold: First,  we  thereby  lose  our  best  people,  and  secondly, 
upon  the  resumption  of  activity  we  have  to  break  in  new 
people  again. 

Establishment  No.  10.  Weaving  is  much  more  difficult 
than  the  average  person  who  comes  from  the  farms  and  rural 
districts,  not  only  in  this  country  but  from  foreign  countries, 
anticipates;  and  the  average  that  makes  good  is  one  in 
twelve. 

As  you  will  see  by  the  names  of  all  our  employees  they  are 
very  largely  made  up  of  foreigners,  and  to  this  we  attribute 
the  constant  coming  and  going,  as  they  come  to  this  country 


DIFFERENCES  IN  EFFICIENCY  161 

from  stories  they  have  been  told  that  money  is  easy  to  make 
in  America.  There  also  are  a  great  many  positions  open  for 
them  in  which  as  much  money  can  be  earned  without  the  same 
amount  of  brains  or  skill  being  necessary. 

Establishment  No.  15.  In  our  opinion,  what  will  make  a 
good  weaver  will  make  a  good  workman  in  almost  any  line, 
especially  mechanical.  The  good  weaver  has  a  "  mechanical 
sense,"  which  is  lacking  in  a  poor  one.  No  doubt  this  is 
one  reason  why  men  are  usually  more  efficient  in  weaving 
than  women,  who  usually  lack  the  "instinct  for  machinery," 
if  it  may  be  so  called.  A  proof  of  this  opinion  is  found  in 
the  fact  that  weavers  as  a  class  are  less  efficient  now  than 
they  were  ten  years  ago.  This  is  certainly  true  in  our  plant 
and,  we  believe,  in  the  industry  generally.  The  reason  for 
this  is  that  the  best  weavers  go  into  some  other  line  of  in- 
dustry where  the  pay  is  better.  Many  of  our  "stars"  of 
past  years  went  into  the  wire-fence  industry.  Many  more, 
during  the  past  three  or  four  years,  have  gone  into  the  auto- 
mobile industry,  of  which  the  center  for  the  country  is  only 
fifty  miles  from  us.  Some  of  our  weavers  who  have  gone  into 
this  business  have  made  good  and  are  now  drawing  several 
times  as  much  as  they  could  ever  have  hoped  for  in  weav- 
ing. .  .  . 

It  is  invariably  true  that  the  weavers  who  turn  off  the 
most  work  in  a  given  time  also  turn  off  the  best  work.  The 
extremely  slow  and  careful  weavers  are  the  ones  who  turn  out 
the  poor  goods.  Of  course,  in  this  statement  we  are  referring 
only  to  the  honest  workman,  not  to  those  who  have  no  pride  in 
their  work  and  run  it  out  as  fast  as  they  can,  regardless  of 
results. 

Establishment  No.  20.  There  are  first-class  weavers,  good! 
weavers,  fairly  good  weavers,  and  "also  rans."  Distinctly 
poor  weavers,  of  course,  we  do  not  keep.  It  is  just  about  as 
difficult  to  account  for  these  degrees  as  it  is  to  explain  the 
difference  in  artists,  machinists,  carpenters,  bricklayers,  or 
baseball  pitchers.  Natural  manual  skill,  vitality,  a  quick  eye, 
11 


162  DIFFERENCES  IN  EFFICIENCY 

diligence,  alertness,  ambition,  system,  temperament — are  all 
governing  factors. 

The  good  weaver  never  seems  to  be  doing  anything ;  the  poor 
weaver  always  appears  to  be  hard  at  work.  The  good  weaver 
is  quietly  on  the  alert  for  things  to  happen;  the  poor  weaver 
is  always  fussing  around  to  catch  up  after  they  happen;  con- 
sequently the  good  weaver  not  only  produces  more  work  but 
better  work  than  the  poor  one. 


CONSERVATION  OF  HUMAN  LIFE 

[THE  Report  on  National  Vitality,  Its  Wastes  and  Conservation, 
prepared  for  the  National  Conservation  Commission  in  1908,  by  Irving 
Fisher,  professor  in  Yale  University,  contained  a  brief  summary  of  the 
arguments  and  material  of  the  report.  The  following  extract  contains 
the  greater  portion  of  the  summary  of  parts  I,  II  and  IV.  The  whole 
report  was  published  as  Bulletin  30  of  the  Committee  of  One  Hundred 
on  National  Health.] 

PART  I. — Length  of  life  versus  mortality. 

CHAPTER  I — THE  LENGTH  OP  LIFE 

§  1.  7n  different  places. — President  Eoosevelt  has  pointed 
out  that  the  problem  of  conserving  our  natural  resources  is 
part  of  another  and  greater  problem — that  of  national  effi- 
ciency. This  depends  not  only  on  physical  environment,  but 
on  social  environment,  and  most  of  all  on  human  vitality. 
Modern  hygiene  is  the  reaction  against  the  old  fatalistic  creed 
that  deaths  inevitably  occur  at  a  constant  rate.  The  new 
motto  is  that  of  Pasteur:  "It  is  within  the  power  of  man 
to  rid  himself  of  every  parasitic  disease. " 

It  was  once  believed  that  human  mortality  followed  an  "in- 
exorable law. ' '  Facts,  however,  show  that  mortality  varies  in 
different  places  and  is  decreasing  as  hygiene  comes  into  use. 
The  length  of  life  in  Sweden  and  Denmark  is  over  fifty  years ; 
in  the  United  States  and  England  about  forty -five;  in  India 
less  than  twenty-five. 

§  2.  At  different  times. — In  Europe,  according  to  one  au- 
thority, the  length  of  life  has  increased  in  three  hundred  and 
fifty  years  from  less  than  twenty  to  about  forty  years;  in 
England,  in  less  than  half  a  century,  it  has  increased  about 
five  years;  in  Prussia,  in  the  last  quarter  of  a  century,  over 

163 


164  CONSERVATION  OF  HUMAN  LIFE 

six  years;  in  America  it  has  also  increased,  although  good 
life  tables  are  lacking  excepting  for  insurance  experience.,/ 
The  tables  for  Massachusetts  for  1893-1897  show  an  average 
duration  of  life  in  that  State  of  forty-five  years,  as  compared 
with  forty  in  1855,  and  thirty-five,  an  estimate  of  1789,  based, 
however,  on  doubtful  returns. 


CHAPTER  n — THE  MORTALITY  RATE. 

§  1.  Relation  of  longevity  to  mortality. — As  duration  of  life 
/increases  the  death  rate  decreases.  A  death  rate  is  the  ratio 
of  the  number  of  deaths  in  a  year  to  the  population.  Under 
normal  conditions  where  the  population  is  "stationary" — 
that  is,  neither  increasing  nor  decreasing  nor  subject  to  immi- 
gration or  emigration — the  death  rate  and  the  duration  of 
life  are  ' '  reciprocals* ' '  In  such  a  population,  if  the  death  rate 
is  20  per  1,000,  the  duration  of  life  will  be  1,000  -^-  20  =  50 
years. 

This  relation,  however,  is  disturbed  in  most  countries  to- 
day, and  especially  in  America,  by  immigration  and  emigra- 
tion and  by  the  birth  rate  being  in  excess  of  the  death  rate. 
*  Nevertheless,  death  rates,  if  compared  under  similar  condi- 
tions, furnish  a  fairly  good  index  of  vitality.  They  vary  in 
different  places  and  at  different  times. 

§  2.  Mortality  in  various  regions. — In  the  registration  area 
of  the  United  States  the  death  rate  is  16.5  per  1,000 ;  in  France 
it  is  20 ;  in  India  42.  In  different  States  of  the  United  States 
it  varies  from  14  in  Michigan  to  18  in  New  York. 

§  3.  Urban  and  rural  mortality. — The  death  rate  is  higher 
in  the  city  than  in  the  country,  and  the  larger  the  city  the 
higher  the  death  rate.  In  European  countries  among  the 
cities  with  the  highest  death  rate  are  Dublin  (40)  and  Mos- 
cow (37) ;  among  the  lowest,  Frankfort  on  the  Main  (16)  and 
The  Hague  (16). 

§  4.  Race  and  condition. — The  colored  death  rate  greatly 
exceeds  the  white.  The  death  rate  among  the  poor  exceeds 


CONSERVATION  OF  HUMAN  LIFE  165 

that  among  the  rich,  being  in  Glasgow  and  Paris  over  twice 
as  great. 

§  5.  Mortality  historically. — Death  rates  have  been  decreas- 
ing during  several  centuries.  In  London,  where  now  the  death 
rate  is  only  15,  it  was  during  the  seventeenth  and  eighteenth 
centuries  40  to  50,  and  during  1680  to  1728,  a  period  of 
pests,  it  rose  as  high  as  80.  Similar  reduction  has  also  been 
experienced  in  this  country.  In  Habana  the  death  rate  after 
the  American  occupation  fell  from  over  50  to  about  20. 

§  6.  Adult  and  infant  mortality. — The  greatest  reduction 
has  been  effected  among  children,  although  the  death  rate  is 
still  undoubtedly  high.  Statistics  show  that  during  the  last 
thirty  years  the  death  rate  up  to  50  years  of  age  has  de- 
creased, but  that  beyond  50  it  has  remained  almost  stationary. 

§  7.  Particular  diseases. — The  mortality  from  certain  spe- 
cial diseases  has  greatly  decreased.  The  tuberculosis  death 
rate  is  now  in  England  only  one-third  of  what  it  was  seventy 
years  ago.  The  death  rate  from  pneumonia  now  equals  that 
of  tuberculosis.  Typhoid  fever  is  decreasing.  In  Munich 
during  1856  the  mortality  was  291  per  100,000  of  population. 
The  city  at  that  time  contained  many  cesspools.  After  these 
were  filled  up  the  typhoid  rate  fell  to  10  per  100,000  in  1887, 
making  a  reduction  of  97  per  cent.  In  Lawrence,  Mass.,  after 
the  public  water  was  filtered  in  1893  the  typhoid-fever  rate 
fell  from  105  to  22.  Doctor  Kober  has  shown  that  death  rates 
from  typhoid  fever  are  greatest  in  cities  in  which  the  rivers' 
waters  are  polluted,  the  average  for  these  cities  being  62,  as 
compared  with  18  for  cities  using  unpolluted  water  of  im- 
pounded and  conserved  streams.  Doctor  Rosenau  concludes 
that  any  community  having  clean  water  and  uninfected  milk 
supply  may  be  free  from  typhoid. 

Smallpox  has  greatly  decreased  since  vaccination  has  been 
employed.  In  Prussia  the  death  rate  per  100,000  from  small- 
pox between  1846  and  1870  was  24.  In  1874  vaccination  was 
made  compulsory,  and  the  death  rate  for  the  years  1875-76  fell 
to  1.5.  Similar  figures  can  be  given  for  other  places.  The 


166  CONSERVATION  OF  HUMAN  LIFE 

present  outcry  against  vaccination  is  based  on  misinformation 
and  on  the  general  reasoning  that  it  is  unnatural  to  introduce  a 
poison  into  the  blood.  Statistics  show  clearly  that  vaccination 
decreases  smallpox  and  lengthens  life.  Even  though  it  were 
shown  that  the  virus  is  injurious,  it  would  be  the  lesser  of  two 
evils. 

Yellow  fever  in  Philadelphia  in  1793  caused  the  death  of 
one-tenth  of  the  city's  population  within  six  and  one-half 
weeks.  In  1900  it  was  found  that  a  species  of  mosquito  trans- 
mits this  disease.  The  result  of  this  applied  knowledge  is 
that  the  disease  has  practically  disappeared  in  America. 

C 

PART  II. — EreadtK  of  life  versus  invalidity. 

CHAPTER  III — PREVALENCE  OF  SERIOUS  ILLNESS. 

§  1.  Loss  of  time. — Life  is  shortened  by  death  and  nar- 
rowed by  invalidity.  The  ideal  life,  with  respect  to  health, 
would  be  free  from  illness  and  disability  of  every  kind.  To 
approximate  such  an  ideal  is  the  aim  of  hygiene.  It  is  usually 
true  that  the  healthier  a  life  the  longer  it  will  last.  Hum- 
boldt  maintained  that  he  had  lived  four  working  lives  by  re- 
taining a  working  power  double  the  average  for  double  the 
average  number  of  years.  According  to  Farr,  for  every  death 
there  is  an  average  severe  sickness  of  two  years,  or  for  each 
death  per  year  there  are  two  persons  sick  throughout  the  year. 
This  would  mean  in  the  United  States  that,  as  there  are  about 
1,500,000  annual  deaths,  there  will  always  be  about  3,000,000 
persons  on  the  sick  list,  which  is  equivalent  to  about  thirteen 
days  per  capita. 

§  2.  Particular  diseases. — There  are  constantly  ill  in  the 
United  States  of  tuberculosis  about  500,000  persons,  of 
whom  about  one-half  are  totally  incapacitated,  while  the  re- 
mainder are  half  incapacitated.  The  causes  of  various  dis- 
eases are  closely  interwoven.  Professor  Sedgwick  tells  us  that 
Hazen's  theorem "  shows  for  every  death  from  typhoid  fever 


<  < 


CONSERVATION  OF  HUMAN  LIFE  167 

avoided  by  the  purification  of  a  polluted  water  supply  two  or 
three  deaths  are  avoided  from  other  causes.  Hook-worm  dis- 
ease in  the  South  is  a  chief  cause  of  incapacitation,  especially 
among  the  poor  whites.  For  this  reason  the  hook  worm  has 
been  nicknamed  the  ' l  germ  of  laziness. "  It  is  believed  that  a 
sufferer  from  hook-worm  disease  is  incapacitated  from  one- 
fourth  to  one-half  of  the  time. 

.  .  .  The  social  diseases,  which  certainly  are  preventable,  are 
one  of  the  gravest  of  the  menaces  to  national  efficiency. 

American  railways  in  1907-8  killed  nearly  11,800  and  in- 
jured nearly  111,000  persons.  The  deaths  and  disablements 
from  accidents  in  industry,  although  less  carefully  recorded, 
also  represent  a  great  and  needless  impairment  of  efficiency. 

CHAPTER  IV — PREVALENCE  OP  MINOR  AILMENTS. 

§  1.  Importance  of  minor  ailments. — Minor  ailments  are 
far  more  common  than  most  persons  realize.  They  are  chiefly 
functional  disorders,  such  as  of  the  stomach,  heart,  nerves, 
liver,  kidney,  etc.  These  deserve  more  attention  than  they 
have  hitherto  received,  because  they  are  the  gateway  to  more 
serious  troubles.  For  instance,  those  who  neglect  colds,  or 
what  seem  to  be  colds,  will  be  far  more  likely  to  become  victims 
of  tuberculosis  or  pneumonia.  No  statistics  of  the  prevalence 
of  minor  ailments  exist.  Physicians,  whose  experience  gives 
them  good  opportunity  to  judge,  place  the  time  lost  annually 
for  each  person  from  minor  ailments  at  three  or  more  days  a 
year. 

§  2.  Preventalrility  of  minor  ailments. — Practically  all 
minor  ailments  can  be  avoided  by  proper  hygiene,  public  and 
private.  Neurasthenia,  so  common  in  America,  is  one  of  the 
most  serious  and  insidious  introductions  to  grave  disorders, 
and  is  usually  due  to  needless  worry  or  failure  to  have  ade- 
quate recreation. 


168  CONSERVATION  OF  HUMAN  LIFE 

CHAPTER  V — PREVALENCE  OP   UNDUE  FATIGUE. 

§  1.  Strength,  endurance,  and  fatigue. — Strength  is  meas- 
ured by  the  force  a  muscle  can  exert  once;  endurance  by  the 
number  of  times  it  can  repeat  an  exertion  requiring  a  specified 
part  of  the  strength.  Fatigue  is  a  chemical  effect,  due  to 
"fatigue  poisons/'  Far  greater  differences  exist  between 
different  persons  in  respect  to  endurance  than  in  respect  to 
strength.  Some  "well"  people  become  tired  by  a  short  walk, 
while  others  withstand  hours  of  walking,  running,  or  climbing. 

§  2.  Alcohol  and  fatigue.— The  "Committee  of  Fifty " 
found  that  alcohol  gives  no  persistent  increase  of  muscular 
power.  It  is  well  understood  by  all  who  control  large  bodies 
of  men  engaged  in  physical  labor  that  alcohol  and  effective 
work  are  incompatible.  Rivers,  writing  on  the  influence  of 
alcohol  on  fatigue,  found  that  when  workmen  were  provided 
with  a  moderate  amount  of  wine  it  resulted  in  a  considerable 
diminution  of  their  capacity  for  work. 

§  3.  Tobacco  and  fatigue. — Athletes  recognize  that  smoking 
interferes  with  one's  "wind"  or  "staying  power."  "  In- 
haling" tobacco  smoke  brings  carbon-monoxide  directly  into 
the  blood  stream.  It  is  found  that  smoking  increases  blood 
pressure,  which  fact  possibly  partly  explains  the  reduction  in 
endurance. 

§  4.  Diet  and  fatigue. — When  excessive  amounts  of  the 
protein  element  in  food  (exemplified  in  white  of  egg  or  the 
lean  part  of  meat)  are  taken,  they  putrefy  in  the  large  in- 
testine, producing  "auto-intoxication."  For  this  and  other 
reasons,  there  is  a  present  tendency  among  physiologists  to 
advise  a  reduction  in  the  use  of  such  foods  from  the  amounts 
customary  in  many  countries,  and  especially  in  the  United 
States.  Auto-intoxication  induces  fatigue.  The  comparison 
of  those  using  high  protein  and  of  those  using  low  protein 
shows  in  general,  although  with  some  exceptions,  that  the  for- 
mer have  less  endurance  than  the  latter.  Whether  the  latter 
are  vegetarian  or  not  does  not  seem  to  matter.  Experiments 


CONSERVATION  OF  HUMAN  LIFE  169 

show  that  thorough  mastication  leads  instinctively  to  a  reduc- 
tion in  protein. 

§  5.  Exertion  and  fatigue. — Oxygen,  whether  taken  natur- 
ally or  artificially,  increases  the  capacity  for  exertion.  A 
judicious  amount  of  exercise  is  perhaps  the  chief  factor  in 
producing  the  highest  state  of  muscular  efficiency.  Physical 
training,  comprising  exercise  and  other  hygienic  measures, 
will  probably  make  the  capacity  to  withstand  great  exertion 
three  or  four  times  that  possessed  by  most  persons. 

§  6.  The  working  day. — The  present  working  day,  from  a 
physiological  standpoint,  is  too  long,  and  keeps  the  majority 
of  men  and  women  in  a  continual  state  of  overfatigue.  It 
starts  a  vicious  circle,  leading  to  the  craving  of  means  for 
deadening  fatigue,  thus  inducing  drunkenness  and  other  ex- 
cesses. Experiments  in  reducing  the  working  day  show  a 
great  improvement  in  the  physical  efficiency  of  laborers,  and 
in  many  cases  results  in  even  increasing  their  output  suffi- 
ciently to  compensate  the  employer  for  the  shorter  day. 
Several  examples  of  such  a  result  exist,  but  the  real  justifica- 
tion for  a  shorter  work  day  is  found  in  the  interest  of  the- 
race,  not  the  employer.  One  company,  which  keeps  its 
factory  going  night  and  day,  found,  on  changing  from  two 
shifts  of  twelve  hours  each  to  three  shifts  of  eight  hours  each, 
that  the  efficiency  of  the  men  gradually  increased,  and  the 
days  lost  per  man  by  illness  fell  from  seven  and  one-half  to 
five  and  one-half  per  year.  Public  safety  requires,  in  order 
to  avoid  railway  collisions  and  other  accidents,  the  prevention 
of  long  hours,  lack  of  sleep,  and  undue  fatigue  in  workmen. 

§  7.  The  importance  of  preventing  undue  fatigue. — The 
economic  waste  from  undue  fatigue  is  probably  much  greater 
than  the  waste  from  serious  illness.  This  is  because  the 
number  of  fatigued  persons  is  great  enough  to  more  than  out- 
weigh the  fact  that  the  incapacitation  from  fatigue  is  rela- 
tively small.  Moreover,  the  relatively  slight  impairment  of 
efficiency  due  to  overfatigue  leads  to  greater  impairment  from 
serious  illness.  A  typical  succession  of  events  is,  first,  fatigue, 


170  CONSERVATION  OF  HUMAN  LIFE 

then  " colds,"  then  tuberculosis,  then  death.  The  prevention 
of  undue  fatigue  means  the  arrest  at  the  start  of  this  ac- 
celerating chain  of  calamities. 

[Part  III,  comprising  about  two-fifths  of  the  Report,  deals  with  the 
conserving  of  life  by  various  methods,  through  improving  the  hereditary 
vitality  (the  ideal  of  the  new  science  of  eugenics),  and  through  hygiene, 
public,  semipublic  and  personal.] 


PART  IV. — Results  of  conserving  life. 

CHAPTER  XI — PROLONGATION  OF  LIFE. 

§  1.  Life  is  lengthening. — So  far  as  we  can  judge  from  sta- 
tistics of  the  average  duration  of  life,  it  has  been  on  the  in- 
crease for  three  hundred  and  fifty  years,  and  is  now  increasing 
more  rapidly -than  ever  before.  During  the  seventeenth  and 
eighteenth  centuries  the  increase  was  at  the  rate  of  about 
four  years  per  century ;  during  the  first  three-quarters  of  the 
nineteenth  century  the  rate  was  about  nine  years.  At  pres- 
ent in  Massachusetts  life  is  lengthening  at  the  rate  of  about 
fourteen  years  per  century;  in  Europe  about  seventeen;  and 
in  Prussia,  the  land  of  medical  discovery  and  its  application, 
twenty-seven.  In  India,  where  medical  progress  is  practically 
unknown,  the  life  span  is  short  (twenty-five)  and  remains 
stationary. 

§  2.  Table  showing  further  practicable  prolongation. — It  is 
possible  to  estimate  the  effect  on  the  length  of  life  of  the  par- 
tial elimination  of  various  diseases.  Using  the  statistics,  ex- 
perience, and  estimate  of  18  physicians  as  to  the  preventability 
of  each  of  the  list  of  90  causes  of  death,  we  find  that  the 
length  of  life  could  easily  be  increased  from  forty-five  to 
sixty,  an  increase  of  one-third,  or  fifteen  years.  This  would 
result  in  a  permanent  reduction  in  death  rate  of  about  25  per 
cent.  The  principal  reductions  would  be  from  infantile 
diarrhea  and  enteritis,  over  60  per  cent,  of  which  could  be 
prevented,  with  the  result  of  an  addition  to  the  average  length 


CONSERVATION  OF  HUMAN  LIFE  171 

of  life  of  2.32  years.  Broncho-pneumonia,  also  an  infant  dis- 
ease, could  be  prevented  to  the  extent  of  50  per  cent.,  whereby 
life  would  be  lengthened  by  0.60  year.  Meningitis,  which  is 
usually  fatal  at  the  age  of  two,  could  be  prevented  by  at  least 
70  per  cent.,  and  this  prevention  would  lengthen  the  average 
life  by  0.60  year.  Eighty-five  per  cent,  of  the  mortality  by  ty- 
phoid fever  is  unnecessary,  and  if  avoided  would  lengthen  life 
at  least  0.65  year.  It  would  be  feasible  to  prevent  at  least  75 
per  cent,  of  cases  of  tuberculosis  of  the  lungs,  and  thereby  to 
lengthen  life  by  about  two  years.  If  the  deaths  from  violence 
were  reduced  only  35  per  cent.,  human  life  would  be  increased 
by  0.86  year.  The  prevention  of  45  per  cent,  of  cases  of  pneu- 
monia would  lengthen  life  by  0.94  year.  These  seven  dis- 
eases alone  could  easily  be  reduced  by  these  amounts  so  as  to 
lengthen  life  by  eight  years.  This  could  be  done  simply 
through  insistence  by  the  public  on  pure  milk,  pure  water, 
pure  air,  and  reasonable  protection  from  accidents. 

§  3.  Effect  of  prolongation  at  different  ages.  [Discussion 
of  a  diagram  representing  the  life  table  of  Massachusetts  for 
1893-1897.]  It  shows  that  about  thirteen  or  more  years  could 
easily  be  added  to  the  average  duration  of  life.  The  diagram 
also  shows  the  extent  to  which  the  additional  life  would  fall  in 
different  ages.  The  per  cent,  of  life  which  would  fall  to  the 
ages  between  171/2  and  60,  taken  as  the  working  period,  would 
remain  the  same,  namely,  about  55  per  cent. 

§  4.  Fifteen  years  a  minimum  estimate. — The  estimate  of 
fifteen  years  is  a  minimum  because,  first,  it  takes  no  account 
of  future  medical  discoveries,  such  as  a  method  of  curing  or 
preventing  cancer  and  of  postponing  old  age,  as  would  Metch- 
nikoff;  second,  it  takes  little  account  of  the  cumulative  in- 
fluence of  hygiene.  The  full  benefit  of  hygiene  cannot  be  felt 
until  it  is  practised  throughout  life,  and  not  at  the  approach 
of  specific  danger.  Most  so-called  "  causes "  of  death  are 
merely  the  last  straws  which  break  the  camel 's  back.  When  a 
pure  water  supply  prevents  deaths  from  typhoid  fever,  it  pre- 
vents two  or  three  times  as  many  deaths  from  other  causes. 


172  CONSERVATION  OF  HUMAN  LIFE 

Third,  it  takes  no  account  of  the  racial  effects  of  new  health 
ideals  leading,  in  a  general  way,  as  they  must,  to  healthier 
marriages. 

§  5.  Need  of  lengthening  human  life. — With  increase  of 
knowledge  the  period  of  education  or  preparation  for  life 
must  constantly  increase.  This  fact  creates  a  need  for  a 
longer  life,  with  the  later  periods  of  life  increased"  in  propor- 
tion. The  result  of  such  a  prolongation  will  be  not  the  keep- 
ing alive  of  invalids,  but  the  creation  of  a  population  contain- 
ing a  large  number  of  vigorous  old  men.  Metchnikoff  says, 
* '  The  old  man  will  no  longer  be  subject  to  loss  of  memory  or  to 
intellectual  weakness;  he  will  be  able  to  apply  his  great  ex- 
perience to  the  most  complicated  and  most  delicate  parts  of  the 
social  life." 

§  6.  The  normal  lifetime. — It  is  usually  recognized  that  hu- 
man life  is  abnormally  short,  but  no  exact  determination  has 
ever  been  made  of  what  constitutes  a  normal  lifetime. 
Flourens  maintains  that  a  mammal  lives  five  times  the  length 
of  its  growing  period,  which  would  mean,  since  the  growing 
period  for  man  does  not  cease  until  about  30,  a  normal  human 
lifetime  of  one  hundred  and  fifty  years.  Another  method  of 
estimating  normal  life  is  to  reckon  the  length  of  normal  life 
as  the  time  when  old  age  now  sets  in,  83  years.  But  clearly, 
if  Metchnikoff  is  right  in  thinking  that  old  age  itself  is  ab- 
normal, the  normal  lifetime  must  exceed  83.  Many  remark- 
able cases  of  longevity  are  on  record,  but  most  cases  of  reputed 
centenarians  are  not  authenticated.  Drakenburg's  record  was 
authentic,  and  he  lived  to  be  146.  Mrs.  Wood,  of  Portland, 
Ore.,  recently  died  at  120.  To  what  extent  these  exceptional 
cases  could  be  made  common  cannot,  as  yet,  be  known. 

,\ 

CHAPTER  XII — THE  MONEY  VALUE  OP  INCREASED  VITALITY. 

§  1.  Money  appraisal  of  preventable  wastes. — Doctor  Farr 
has  estimated  the  net  economic  value  of  an  English  agricul- 
tural laborer  at  various  times  of  life  by  discounting  his  chance 


CONSERVATION  OF  HUMAN  LIFE  173 

of  future  earnings  after  subtracting  the  cost  of  maintenance. 
On  the  basis  of  this  table  we  may  construct  a  rough  estimate 
of  the  worth  of  an  average  American  life  at  various  ages, 
assuming  that  only  three-fourths  of  those  of  working  age  are 
actually  earners  of  money  or  housekeepers.  It  gradually  rises 
from  a  value  of  $90  in  the  first  year  to  $4,200  at  the  age  of 
30,  and  then  declines  until  it  becomes  negative  for  the  higher 
ages.  This  estimate  assumes  $700  per  year  as  the  average 
earnings  in  middle  life.  This  is  largely  conjecture,  but  is  re- 
garded as  a  very  safe  estimate.  Applying  this  table  to  the 
existing  population  at  various  ages  in  the  United  States,  we 
find  that  the  average  value  of  a  person  now  living  in  the 
United  States  is  $2,900,  and  the  average  value  of  the  lives 
now  sacrificed  by  preventable  deaths  is  $1,700.  The  latter  is 
smaller  than  the  former  because  the  age  of  the  dying  is 
greater  than  the  age  of  the  living.  Applying  the  $2,900  to 
the  population  of  eighty-five  and  a  half  millions,  we  find  that 
our  population  may  be  valued  as  assets  at  more  than  $250,000- 
000,000;  and  since  the  number  of  preventable  deaths  is 
estimated  at  630,000,  the  annual  waste  from  preventable 
deaths  is  630,000  times  $1,700  or  about  $1,000,000,000.  This 
represents  the  annual  preventable  loss  of  potential  earnings. 

We  saw  in  Chapter  III  that  there  are  always  3,000,000 
persons  in  the  United  States  on  the  sick  list,  of  whom  about 
1,000,000  are  in  the  working  period  of  life  and  about  three- 
quarters  are  actually  workers  and  must  lose  at  least  $700, 
which  makes  the  aggregate  loss  from  illness  more  than  $500, 
000,000.  Adding  to  this  another  $500,000,000  as  the  expense 
of  medicines,  medical  attendance,  special  foods,  etc.,  we  find 
the  total  cost  of  illness  to  be  about  $1,000,000,000  per  year, 
of  which  it  is  assumed  that  at  least  one-half  is  preventable. 
Adding  the  preventable  loss  from  death,  $1,000,000,000,  to 
the  preventable  loss  from  illness,  $500,000,000,  we  find  one  and 
a  half  billions  as  the  very  lowest  at  which  we  can  estimate  the 
preventable  loss  from  disease  and  death  in  this  country.  The 
true  figures  from  the  statistics  available  may  well  amount  to 


174  CONSERVATION  OF  HUMAN  LIFE 

several  times  this  figure,  but  when  statistics  are  based  partially 
on  conjecture,  they  need  to  be  stated  with  special  caution. 

§  2.  The  cost  of  conservation. — In  Huddersfield  the  annual 
deaths  of  infants  for  ten  years  had  been  310.  By  systematic 
education  of  mothers,  the  number  in  1907  was  reduced  to  212. 
The  cost  of  saving  these  98  lives  was  about  $2,000  or  about 
-  $20  each.  General  Leonard  Wood  declared  that  the  dis- 
covery of  the  means  of  preventing  yellow  fever  saves  annually 
more  lives  than  were  lost  in  the  Cuban  war.  The  hook-worm 
disease  in  the  South  impairs  the  earning  power  of  its  work- 
men by  25  or  50  per  cent.  To  restore  this  earning  power  costs, 
by  curing  this  disease,  on  an  average,  less  than  $1  for  each 
case.  These  and  other  examples  show  that  the  return  on  in- 
vestments in  health  are  often  several  thousand  per  cent,  per 
annum.  Probably  no  such  unexploited  opportunity  for  rich 
returns  exists  in  any  other  field  of  investment.  An  actuary 
suggests  that  if  insurance  companies  should  combine  to  con- 
tribute $200,000  a  year  for  the  purpose  of  improving  the  pub- 
lic health,  the  cost  would  be  one-eighth  of  1  per  cent,  of  the 
premiums,  and  it  would  be  reasonable  to  expect  a  decrease  in 
death  claims  of  much  more  than  1  per  cent.  Even  this  1  per 
cent,  would  make  a  profit  of  more  than  seven  times  the  ex- 
pense. 

CHAPTER  XIII — THE  GENERAL  VALUE  OF  INCREASED  VITALITY. 

§  1.  Disease,  poverty,  and  crime. — Money  estimates  of 
waste  of  life  are  necessarily  imperfect  and  sometimes  mis- 
leading. The  real  wastes  can  only  be  expressed  in  terms  of 
human  misery.  Poverty  and  disease  are  twin  evils  and  each 
plays  into  the  hands  of  the  other.  From  each  springs  vice  and 
crime.  Again,  whatever  diminishes  poverty  tends  to  improve 
health,  and  vice  versa. 

§  2.  Conservation  of  natural  resources. — The  conservation 
of  our  natural  resources — land,  raw  materials,  forests,  and 
water — will  provide  the  food,  clothing,  shelter,  and  other 


CONSERVATION  OF  HUMAN  LIFE  175 

means  of  maintaining  healthy  life,  while  the  conservation  of 
health  likewise  tends  in  many  ways  to  conserve  and  increase 
wealth.  The  more  vigorous  and  long  lived  the  race,  the  better 
utilization  it  will  make  of  its  natural  resources.  This  will  be 
true  for  two  reasons  in  particular:  First,  the  greater  inven- 
tiveness or  resourcefulness  of  vigorous  minds  in  vigorous 
bodies.  Civilization  consists  chiefly  in  invention  and  the  most 
progressive  nations  are  those  whose  rate  of  invention  is  most 
rapid.  Second,  the  greater  foresight  and  solicitude  for  the 
future.  As  it  is  usually  the  normal  healthy  man  who  pro- 
vides life  insurance  for  his  family,  so  it  will  be  the  normal 
healthy  nation  which  will  take  due  care  of  its  resources  for  the 
benefit  of  generations  yet  unborn. 

CHAPTER  XIV — THINGS  WHICH  NEED  TO  BE  DONE. 

§  1.  Enumeration  of  principal  measures. — Federal,  State 
and  municipal  boards  of  health  should  be  better  appreciated 
and  supported.  Their  powers  of  investigation,  administra- 
tion, and  disseminating  information  should  be  enlarged. 
School  hygiene  should  be  practised,  and  personal  hygiene  more 
emphasized.  The  multiplication  of  degenerates  should  be 
made  impossible. 


WAGES  OF  FARM  LABOR 

[EXTBACT  from  the  Yearbook  of  the  Department  of  Agriculture,  1910, 
pp.  194-200.  Paper  by  George  K.  Holmes,  Chief  of  Division  of  Pro- 
duction and  Distribution,  Bureau  of  Statistics.] 

Various  investigations.  The  subject  of  the  wage  rates  of 
farm  labor  was  first  systematically  investigated  in  this 
country  by  the  Bureau  of  Statistics  of  the  Department  of 
Agriculture  in  1866.  The  investigation  was  repeated  with 
variations  every  few  years  until  the  latest  one  in  1909.  The 
results  of  nineteen  investigations  are  of  record,  covering  the 
period  of  forty-four  years,  beginning  with  the  abnormal  con- 
ditions at  the  close  of  the  Civil  War  and  passing  through  the 
two  severe  industrial  depressions  of  1873-1877  and  1893- 
1897,  and  the  less  severe  depressions  of  1884-86,  1903-4,  and 
1907-8. 

From  the  beginning  of  this  period  to  about  1897  agricultural 
overproduction  was  frequent.  Immense  areas  of  new  public 
land  came  into  cultivation,  and  farmers  were  painfully  in  debt, 
and  often  the  prices  of  products  were  unprofitable,  if  not  posi- 
tively below  the  cost  of  production.  Since  1897,  and  more  es- 
pecially since  1902,  the  financial  condition  of  farmers  has 
much  improved.  All  of  the  conditions  mentioned  may  be  re- 
lated to  the  wages  of  farm  labor,  and,  in  fact,  apparently  have 
been. 

In  the  statement  of  wage  rates,  contained  in  this  article, 
all  original  rates  during  the  currency  period  1866-1878  have 
been  converted  to  gold.  Some  of  the  investigations  were  made 
in  the  spring  with  no  explanation  whether  the  published  rates 
represented  the  current  year  or  the  preceding  year;  indeed, 
some  of  the  wage  rates,  as,  for  instance,  the  rates  of  day  labor 

176 


WAGES  OF  FARM  LABOR  177 

in  harvest,  must  necessarily  have  belonged  to  the  preceding 
year.  In  another  case  two  investigations  were  made,  but  the 
published  results  were  combined.  These  statements  account 
for  the  use  of  a  double  year  in  several  instances. 

Wage  rates  of  men  per  month.  The  average  wage  rate  of 
$15.50  was  paid  for  the  labor  of  men  on  farms  per  month,  in 
hiring  by  the  year  without  board,  in  the  United  States  in  1866. 
This  average  rate  was  maintained  in  1869,  after  which  there 
was  an  increase  to  $17.10  in  1875 ;  to  $18.52  in  1880  or  1881 ; 
to  $19.22  in  1885 ;  and  in  1909  to  $25.46.  During  the  entire 
period  the  wage  rate  increased  about  two-thirds.  From  1866 
to  1909  the  increase  in  the  North  Atlantic  States  was  from 
$22.04  to  $30.89 ;  in  the  South  Atlantic  States,  from  $10.67  to 
$18.76 ;  in  the  North  Central  States,  from  $20.39  to  $30.55 ;  in 
the  South  Central  States,  from  $12.57  to  $20.27 ;  and  in  the 
Western  States,  from  $40.28  to  $44.35,  a  rate  of  increase  in  the 
last-mentioned  group  far  below  that  of  the  other  divisions. 

The  foregoing  are  money  rates  of  wages,  and  do  not  include 
supplemental  wages  not  expressed  in  money  which  are  more 
or  less  customary  in  all  parts  of  the  country.  Among  the 
items  of  supplemental  wages  are  use  of  dwelling,  often  with 
garden  and  accommodations  for  cow  and  swine ;  wood  for  fuel ; 
pasture  for  cow,  horse,  or  swine;  and  other  items. 

For  only  two  years,  1866  and  1909,  was  the  wage  rate  as- 
certained for  the  outdoor  labor  of  men  per  month  in  hiring  by 
the  season  without  board,  and  the  rates  are  higher  than  they 
are  for  hiring  by  the  year.  In  1866  the  average  rate  was 
$18.08;  in  1909,  $28.22. 

The  highest  monthly  rate,  in  hiring  by  the  season,  paid  in 
any  geographic  division  in  1909  was  $48.04  in  the  Western; 
after  which  follow  in  order,  $35.11  in  the  North  Atlantic ;  $33. 
64  in  the  North  Central;  $22.48  in  the  South  Central;  and 
$20.86  in  the  South  Atlantic. 

During  the  period  1890-1906  wage  rates  were  not  ascer- 
tained for  hiring  by  the  year  and  season  separately,  but  for 

the  two  combined,  and  the  hirings  were  combined  for  1909. 
12 


178  WAGES  OF  FARM  LABOR 

During  this  period  monthly  wage  rates  in  hiring  for  the  season 
and  year  combined,  without  board,  increased  from  $19.45  to 
$27.43.  The  increase  in  the  North  Atlantic  division  was  from 
$24.72  to  $33.68 ;  in  the  South  Atlantic  from  $13.94  to  $20.13 ; 
in  the  North  Central  from  $22.25  to  $32.90;  in  the  South 
Central  from  $16.10  to  $21.85;  and  in  the  Western  from 
$33.96  to  $47.24. 

Rates  per  day.  Every  one  of  the  nineteen  investigations  of 
the  wage  rates  of  farm  labor  included  the  rate  per  day  in  har- 
vest work  with  board.  At  the  beginning  of  the  period,  in 
1866,  the  rate  was  $1.04  and  the  increase  was  to  $1.18  in  1875, 
followed  by  a  decline  to  $1.04  at  the  end  of  the  industrial  de- 
pression of  that  time,  after  which  there  was  an  advance  con- 
tinuously to  $1.20  in  1882 ;  but  the  depression  of  1884-1886 
and  a  period  of  overproduction  and  low  prices  for  farm  prod- 
ucts reduced  the  rate  below  that  of  1882  until,  in  the  de- 
pression of  1893-1897,  the  rate  was  as  low  as  96  cents,  after 
which  there  was  a  marked  advance  to  $1.45  in  1906  and  a  rate 
of  $1.43  in  1909. 

Among  the  geographic  divisions  in  1909  the  highest  wage 
rate  for  harvest  work  with  board  was  $2.02  in  the  Western 
States,  after  which  follow  in  order,  $1.87  in  the  North  Central 
States ;  $1.62  in  the  North  Atlantic ;  $1.10  in  the  South  Central ; 
and  $1.03  in  the  South  Atlantic. 

In  the  North  Atlantic  division  the  rate  increased  through- 
out this  period,  1866-1909,  from  $1.32  to  $1.62;  in  the  South 
Atlantic  division  from  79  cents  to  $1.03 ;  in  the  North  Central 
States  from  $1.31  to  $1.87 ;  in  the  South  Central  States  from 
92  cents  to  $1.10;  and  in  the  Western  States  from  $1.93  to 
$2.02. 

Lower  rates  than  the  foregoing  were  paid  for  day  labor  in 
other  than  harvest  work  with  board.  The  average  for  the 
United  States  begins  with  64  cents  in  1866,  followed  by  fluctua- 
tions similar  to  those  of  harvest  wages,  and  ends  the  period  in 
1909  with  $1.03. 

The  gain  during  the  forty-four  years  was  from  86  cents  to 


WAGES  OF  FARM  LABOR  179 

$1.16  in  the  North  Atlantic  division ;  from  43  cents  to  73  cents 
in  the  South  Atlantic;  from  83  cents  to  $1.32  in  the  North 
Central ;  and  from  55  cents  to  82  cents  in  the  South  Central ; 
while  on  the  contrary  there  was  a  decline  from  $1.49  in  1866 
and  $1.50  in  1869  to  $1.48  in  1909  in  the  Western  States. 

Industrialism,  trade,  and  transportation.  Several  causes 
affecting  farm  wages  were  investigated  in  1909.  In  the  mat- 
ter that  follows  dependence  was  placed  on  the  census  of  1900, 
except  for  the  rates  of  wages.  Farm  wages  are  high  in  States 
in  which  there  has  been  large  development  of  manufacturing, 
mining,  mechanical  pursuits,  trade,  and  transportation  in  com- 
parison with  States  poorly  or  less  developed  in  these  directions, 
and  conversely  wages  are  lower  in  those  States  in  which  agri- 
culture is  predominant  than  in  States  where  it  is  a  subordinate 
industry.  States  in  which  the  urban  population  is  a  large 
percentage  of  the  entire  population  are  those  States  in  which 
the  wages  of  farm  labor  are  higher  than  in  those  in  which 
urban  population  is  of  minor  account. 

Relation  between  production  and  wage  rates.  Necessarily 
in  the  long  course  of  time  the  employing  farmer  must  depend 
upon  the  value  of  his  products  for  the  wages  that  he  pays  to 
his  laborers.  He  can  not  go  on  indefinitely  paying  wages  out 
of  capital,  but  he  must  in  the  general  experience  pay  them  out 
of  farm  products.  Hence  it  follows  as  a  matter  of  inference 
that  farm  wages  may  be  higher  in  those  States  in  which  the 
value  of  the  products  per  worker  is  higher  than  in  those  States 
in  which  the  value  of  products  per  worker  is  lower. 

This  conclusion  is  amply  substantiated  in  the  investigation 
of  farm  wages  in  1909.  The  highest  wages  are  paid  in  the 
Western  division  of  States,  and  in  this  division  the  average 
value  of  farm  products  per  agricultural  worker  in  1899  was 
$759.  Next  below  this  division  in  both  rate  of  wages  and 
average  value  of  farm  products  per  worker,  $678,  is  the  North 
Central  division;  and  third  in  order  in  both  respects  is  the 
North  Atlantic  division.  The  South  Central  division  is  fourth 
in  order  in  both  rate  of  wages  and  value  of  products  per 


180  WAGES  OF  FARM  LABOR 

worker,  which  is  $271;  and  last  of  all  is  the  South  Atlantic 
division  in  both  respects,  the  average  value  of  products  per 
worker  being  $233.  These  values  stand  for  gross  amount  of 
products,  and  not  for  net  wealth  produced. 

Wages  supplementary  to  money  rates.  The  nominal 
money  rate  of  wages  paid  for  farm  labor  by  no  means  fully 
represents  the  real  wages  received  by  the  laborer.  There  are 
two  important  additions  to  the  nominal  money  rate  of  wages 
which  enter  little  if  at  all  into  the  thoughts  and  plans  of  agri- 
cultural laborers.  A  farm  laborer  receiving,  say,  $30  per 
month,  as  he  did  in  the  North  Atlantic  and  North  Central 
States  in  1909,  often  receives  supplemental  wages  in  the  form 
of  use  of  dwelling  and  garden,  accommodations  for  cow,  pigs, 
and  poultry.  The  value  of  the  supplemental  wage  allowances 
...  is  relatively  a  large  addition  to  the  nominal  rate. 

In  the  case  of  the  man  receiving  $30  in  money  wages,  the 
rental  value  of  dwelling  and  appurtenances  would  probably 
be  about  $3.25  to  $4.50.  If  the  farm  laborer  gets  firewood  as 
an  item  of  supplemental  wages,  its  reported  value  per  month 
ranges  from  about  $1.06  to  $2.39,  the  latter  figure  being  ap- 
plicable to  the  $30  laborer  in  the  North. 

It  often  happens  that  the  laborer  receives  supplementary  to 
his  money  rate  of  wages  the  privilege  of  pasturing  his  cow, 
horse,  or  swine,  and  the  estimated  monthly  cost  of  this  as  an 
average  for  the  United  States  is  from  65  cents  to  $1.61.  Or, 
there  may  be  an  allowance  for  feed  outside  of  pasturage  for 
cow,  or  horse,  or  swine,  or  poultry,  and  the  cost  of  this  as 
established  by  this  investigation  ranges  from  $1.11  to  $3.11. 

A  very  common  supplementary  wage  allowance  in  some 
parts  of  the  country,  especially  in  the  North  Central  States, 
is  the  frequent  use  of  a  horse  and  buggy  by  the  farm  laborer. 
The  monthly  value  of  this  has  been  estimated  by  the  corre- 
spondents of  the  Bureau  of  Statistics  in  all  parts  of  the  United 
States,  with  the  result  that  it  ranges  from  87  cents  to  $2.37. 
Or,  the  laborer  may  own  a  horse,  and  stabling  and  feed  are 
provided  by  his  employer  in  addition  to  the  money  rate  of 


WAGES  OF  FARM  LABOR  181 

wages.  For  this  service  it  is  estimated  that  the  cost  ranges 
from  45  cents  to  $2  per  month  throughout  the  entire  country. 

Perhaps  the  laborer's  family  also  receives  without  specific 
charge  a  considerable  quantity  of  fruit.  The  value  of  this 
fruit  is  estimated  on  a  monthly  basis,  although  it  may  have 
been  received  within  one  season,  and  ranges  from  62  cents  to 
$1.64  monthly  throughout  the  year.  If  the  laborer  is  a  single 
man,  his  employer  hires  a  woman  to  do  his  laundry  work  as  a 
part  of  the  family  wash,  and  the  value  of  this  service  is  esti- 
mated to  range  from  75  cents  to  $2  per  month. 

No  laborer  receives  all  of  these  supplemental  wages,  but  it 
often  happens  that  he  receives  more  than  one  item  of  them. 
If  he  is  a  man  of  family,  an  increase  of  his  monthly  money 
rate  of  wages  by  $5  to  $10  worth  of  supplemental  allowances 
and  even  more  is  not  uncommon  in  many  States. 

Advantage  of  farm  wages  in  purchasing  power.  If  the 
farm  laborer  is  comparing  his  nominal  rate  of  money  wages 
with  the  similar  rate  of  the  motorman  or  conductor  of  the 
electric  railway  who  lives  in  the  city,  he  must  take  into  con- 
sideration the  less  costly  living  that  he  gets  on  the  farm.  In 
some  respects  it  is  a  better  living,  against  which  of  course  there 
must  be  made  a  set-off  of  features  that  are  in  some  respects 
worse. 

The  farm  laborer  gets  many  things  at  prices  which  are  as 
low  as  wholesale  prices  in  the  motorman's  city,  and  sometimes 
lower.  He  can  get  his  supply  of  poultry  at  low  prices,  if  he 
does  not  produce  it  himself;  and  so  with  eggs,  milk,  and  but- 
ter ;  sometimes  flour  and  meal ;  very  likely  potatoes  and  other 
vegetables  and  fruit.  At  low  prices  he  may  also  get  fresh 
and  salt  pork,  his  fuel  and,  in  many  parts  of  the  country,  his 
tobacco.  If  he  pays  rent  for  his  dwelling,  he  will  pay,  say, 
$40  per  year,  whereas  the  motorman  with  a  family  pays  $150. 

All  things  considered — the  allowances  received  by  the  farm 
laborer  supplemental  to  the  money  rate  of  wages  and  the  lower 
cost  of  many  things  that  he  buys  as  compared  with  the  cost 
in  the  city — the  farm  laborer  receiving  nominally  $30  per 


182  WAGES  OF  FARM  LABOR 

month  really  gets,  in  comparison  with  his  situation  as  it 
would  be  if  he  lived  in  the  city,  perhaps  more  than  the  motor- 
man  or  street-car  conductor  gets,  and  very  likely  in  most 
cases  a  larger  amount  than  he  would  be  likely  to  earn  in  any 
occupation  open  to  him  in  the  city. 

The  money  wage  rates  of  farm  laborers  have  increased  in  a 
marked  degree  within  the  last  few  years,  and  in  this  respect 
a  comparison  may  be  made  with  the  wages  of  other  working- 
men.  A  still  further  comparison  may  be  made  between  the 
purchasing  power  of  the  wages  of  the  farm  laborer  in  terms 
of  food  and  the  purchasing  power  of  the  wages  of  working- 
men.  The  investigations  of  the  United  States  Bureau  of  Labor 
make  possible  this  comparison. 

If  the  mean  wage  rates  of  agricultural  laborers  for  the  years 
1890-1898  be  regarded  as  100,  the  rate  per  month  of  the  out- 
door labor  of  men  on  farms  in  hiring  by  the  year  and  season  in 
1890  is  represented  by  100.9.  The  relative  number  increased 
to  103.6  in  1893,  and  there  was  a  sudden  decline  to  96.3  in 
1894,  after  which  there  was  an  unbroken  increase  in  this  rela- 
tive number  until  in  1907  it  was  141.1. 

The  purchasing  power  of  the  wages  of  the  farm  laborer  in 
1907  in  terms  of  actual  food  consumption  in  comparison  with 
the  mean  of  1890-1898  is  represented  by  the  comparative  num- 
ber 117.1.  In  1907  the  corresponding  relative  number  stand- 
ing for  the  wages  of  the  workingman  was  122.5  and  the 
purchasing  power  of  his  wages  in  terms  of  actual  food  con- 
sumption in  1907  is  represented  by  the  relative  number  101.7, 
as  compared  with  the  mean  of  1890-1898  which,  as  before 
stated,  is  represented  by  100. 

As  time  advanced  after  1890  the  farm  laborer,  setting  out 
with  wages  having  a  relative  purchasing  power  in  terms  of 
food  about  equal  to  that  of  the  workingman,  passed  him  in 
this  respect  in  1899,  and  rapidly  gained  upon  him  in  subse- 
quent years. 

Ability  of  laborers  to  become  tenants  or  owners.  In 
the  investigation  of  farm  wages  in  1909  inquiries  were  made 


WAGES  OF  FARM  LABOR  183 

to  ascertain  to  what  extent  male  outdoor  farm  laborers  were 
qualified  to  become  farm  tenants.  In  the  opinion  of  the  cor- 
respondents who  supplied  answers,  48  per  cent,  of  the  laborers 
of  the  South  Central  States  are  so  qualified ;  46  per  cent,  in  the 
North  Central  States;  37  per  cent,  in  the  Western;  35  per 
cent,  in  the  South  Atlantic ;  and,  lowest  of  all,  33  per  cent,  in 
the  North  Atlantic  States. 

Correspondents  were  asked  whether  it  was  reasonably  pos- 
sible for  farm  laborers  and  tenants  to  save  enough  to  buy  a 
farm  that  would  support  a  family  even  with  the  help  of  a 
mortgage,  and  their  replies  indicated  that  72  per  cent,  of  farm 
laborers  and  tenants  find  it  reasonably  possible  to  acquire 
farm  ownership.  The  percentages  for  the  geographic  divi- 
sions are  all  over  70  and  under  80 — a  remarkably  uniform 
condition  of  affairs  with  regard  to  this  matter  throughout  the 
United  States. 

Small  movement  from  city  to  farm.  The  movement  from 
city  to  farm  for  the  purpose  of  permanent  farm  life  and  labor, 
either  for  hire  or  under  ownership,  has  hardly  become  general 
enough  in  this  country  to  present  recognizable  proportions. 
There  is  a  little  of  this  movement  here  and  a  little  there,  but 
nearly  all  cases  are  sporadic. 

But  there  is  one  sort  of  labor  that  goes  from  city  to  farm 
which  has  become  large  enough  to  be  perceptible,  and  that  is 
seasonal  labor  for  employment,  not  in  general  farming  opera- 
tions, but  for  special  purposes.  The  migration  of  men  from 
cities  to  follow  the  wheat  harvest  from  Oklahoma  to  North  Da- 
kota is  the  best  known  feature  of  this  sort  of  farm  labor.  It 
is  not  so  generally  known  that  women  and  children  and  some 
men,  too,  go  from  the  city  to  the  farm  at  certain  seasons  to 
harvest  cucumbers  to  be  sold  to  the  pickle  factory;  to  pick, 
grade,  pack,  and  dry  fruits ;  to  harvest  hops  and  berries,  and 
dig  potatoes,  and  so  on  with  other  crops  that  need  a  rush  of 
labor  at  time  of  harvest.  Some  labor  of  this  sort  is  applied 
also  to  the  cultivation  of  crops,  as  in  pulling  weeds  from  beets 
and  onions,  but  this  labor  does  not  seem  to  be  used  much  for 
cultivating  crops  and  not  at  all  for  planting. 


"HEAL  WAGES"  IN  AMERICAN  TOWNS 

[IN  the  British  Board  of  Trade  Report  (April,  1911),  the  following 
comparison  of  wages  and  of  the  two  main  items  in  the  cost  of  living 
shows  the  "large  town"  in  an  unexpectedly  favorable  light.  The  ques- 
tion occurs  whether  there  are  not  other  elements  of  income  direct  and 
indirect,  psychic  or  material,  which  enter  into  the  balance  of  advan- 
tages in  living  in  large  or  small  towns,  and  thus  into  the  "real 
wages"  (p.  xxxvii).] 

Relation  of  wages  to  rents  and  retail  food  prices.    In  the 

two  following  tables  the  mean  index  numbers  for  the  wages 
of  skilled  men  in  the  building,  engineering  and  printing  trades, 
and  for  rents,  food  prices  and  rents  and  food  prices  combined, 
have,  for  convenience,  been  brought  together  for  the  various 
geographical  divisions  and  population  groups  that  have  been 
already  considered: 

.  .  .  By  combining  the  mean  index  numbers  of  the  two  main 
divisions  of  the  tables — industrial  conditions  as  illustrated  by 
selected  wages  groups  and  social  conditions  as  illustrated  by 
selected  food  prices  and  rents — it  is  possible  to  derive  an  index 
number  that,  so  far  as  this  is  determined  by  the  element  of 
charges  for  rent  and  food,  may  be  said  roughly  to  indicate 
1  'real  wages/'  i.e.,  the  relative  purchasing  power  of  work 
people  in  the  different  areas  and  groups.  Taking  New  York 
as  100  and  working  out  the  percentage  ratios  of  the  mean  in- 
dex numbers  for  wages  to  those  of  the  mean  index  numbers 
for  rents  and  food  prices  combined,  the  result  is  shown  in  the 
table  on  page  185. 

In  the  population  groups  the  order  as  determined  by  the 
wages  index  numbers  is  maintained  throughout  in  the  "real 
wages "  column,  although  the  differences  from  the  New  York 
standard  are  always  diminished,  the  range  being  from  89  to 

184 


WAGES  IN  AMERICAN  TOWNS  185 

Mean  index  numbers. 
Wages  (skilled  men).     Rents  and  food  prices. 


*fl 

ll* 

1 

| 

I 

B   CU^-. 

*>* 
m* 

lt| 

118 

£3& 

2 
'3 

d 

'1° 

!!| 

1 

1 

||| 

f-\ 

m 

W 

ft 

m 

fe 

pq 

Comparison 

by  geographical 

groups. 

New  York  1 

100 

100 

100 

100 

100 

100 

New  England  towns.   6 

82 

77 

82 

66 

103 

94 

Other  Eastern  towns  4 

91 

84 

87 

68 

100 

92 

Central    towns  6 

90 

85 

86 

71 

97 

90 

Middle  West  towns..   5 

103 

91 

90 

79 

95 

91 

Southern  towns  6 

87 

92 

86 

75 

103 

96 

New    York     (  popula- 

Comparison by  population 

groups. 

tion    4,766,883)...    1 

100 

100 

100 

100 

100 

100 

Other      towns      with 

more  than  500,000 

inhabitants    .      ...   8 

97 

88 

89 

78 

98 

93 

Towns      with      from 

250,000  to  500,000 

inhabitants    .    .         5 

92 

86 

87 

73 

96 

90 

Towns      with      from 

100,000   to  250,000 

inhabitants    8 

87 

83 

85 

69 

101 

93 

Towns     with     under 

100,000  inhabitants  6 

83 

85 

82 

64 

102    , 

93 

100  instead  of  83  to  100,  and  for  the  two  largest  groups  of 
towns  showing,  as  thus  measured,  no  appreciable  difference 
from  New  York. 

In  the  geographical  divisions  the  position  as  shown  is  some- 
what different,  the  rather  advantageous  price  levels  of  the 
towns  of  the  Middle  West  combined  with  a  high  level  of 
wages,  especially  in  the  building  trades,  giving  an  index  num- 
ber for  "real  wages,"  as  calculated,  4  points  higher  than  for 
New  York  itself.  On  the  other  hand,  the  high  prices  of  the 
New  England  group  of  towns  combined  with  a  lower  level  of 
wages  in  the  selected  trades  give  a  level  of  "real  wages"  15 

i  In  the  construction  of  this  index  number  food  prices  have  been  given 
a  weight  of  three  and  rents  of  one. 


186 


WAGES  IN  AMERICAN  TOWNS 


Number 
of  towns 
in  group. 

Wages  of 
skilled  men                       Approximate 
in  building,    Rents  and        relative 
engineering,  food  prices        level  of 
and  print-     combined,    "real  wages." 
ing  trades. 

New  York  

Comparison  by  geographical  groups. 
1                100                100                100 
6                  80                  94                  85 
4                  87                  92                  95 
6                  87                  90                  97 
5                  95                  91                104 
6                   88                   96                   92 

New   England   towns 
Other  Eastern  towns 
Central    towns  
Middle  West  towns.. 
Southern  towns  

New    York    (popula- 
tion   4,766,883)... 
Other      towns      with 
more  than  500,000 
inhabitants    

Comparison  by 
1                100 

8                  91 
5                  88 

8                  85 
6                  83 

population 
100 

93 
90 

93 
93 

groups. 
100 

98 
98 

91 

89 

Towns     with      from 
250,000  to  500,000 

Towns      with      from 
100,000  to  250,000 
inhabitants    

Towns     with     under 
100,000  inhabitants 

per  cent,  lower  than  that  of  New  York,  and  7  points  lower 
than  the  Southern  group  of  towns — the  group  which  ranks 
next  above  that  of  New  England  in  the  order  of  purchasing 
power  as  calculated  in  the  table.  Apart  from  these  two 
groups  the  difference  from  the  New  York  standard  does  not 
exceed  5  points.  It  would  be  unwise  to  press  the  comparisons 
shown  unduly,  but  the  difference  of  19  points  shown  as  be- 
tween the  New  England  group  and  the  towns  of  the  Middle 
West  is  considerable,  and  may  probably  be  taken  as  an  indi- 
cation of  real  differences  that  exist  between  a  center  of  indus- 
try, such  as  that  of  New  England,  that  is  now  somewhere  re- 
moved from  the  main  centers  of  development,  and  one,  such 
as  that  of  the  towns  of  the  Middle  West,  that  is  comparatively 
new  and  able  to  benefit  more  immediately  from  the  great 
natural  resources  of  the  country. 


IMMIGRATION  AND  CONDITIONS  OF  LABOR 

[By  Act  of  Congress,  February  20,  1907,  an  Immigration  Commission 
was  created,  to  consist  of  three  Senators,  three  members  of  the  House 
of  Representatives,  and  three  citizens  to  be  appointed  by  the  Presi- 
dent of  the  United  States.  This  commission  had  the  duty  of  making 
full  "inquiry,  examination  and  investigation,"  of  the  subject  of  immi- 
gration. The  results  of  the  Commission's  thorough  work  will  be 
embodied  in  forty-two  volumes,  and  "the  gist  of  the  information" 
thus  collected  is  presented  in  a  volume  prepared  by  Professor  J.  W. 
Jenks  (one  of  the  commissioners)  with  the  collaboration  of  W.  J. 
Lauck,  expert  in  charge  of  the  industrial  investigations.  (The  Immi- 
gration Problem,  N.  Y.  Funk  and  Wagnalls,  1912.) 

By  permission  we  reproduce  (with  some  amendments  by  the  author) 
the  greater  part  of  the  chapter  containing  the  conclusions  as  to  the 
effect  of  immigration  on  wages,  entitled,  "The  immigrant  as  a  dynamic 
factor  in  industry"  (pp.  182-197).] 

The  absorption  of  so  large  numbers  of  alien  people  into 
the  mines  and  manufacturing  establishments,  and  into  the 
general  labor  force  of  the  United  States,  was  obviously  at- 
tended by  very  important  results.  These  effects  of  the  intense 
employment  of  southern  and  eastern  Europeans  may  be 
briefly  considered,  from  (1)  the  standpoint  of  the  general  in- 
dustrial situation,  and  (2)  that  of  native  Americans  and  older 
workmen.  Before  entering  into  a  discussion  of  these  effects, 
however,  it  will  be  necessary,  in  order  that  the  situation  may 
be  fully  comprehended,  to  review  briefly  the  personal  and 
industrial  qualities  of  the  recent  immigrant  labor  supply  to 
the  United  States.  These  are  briefly  set  forth  below. 

Lack  of  technical  training.  .  .  .  An  exceedingly  small 
proportion  have  had  any  training  abroad  for  the  industrial 
occupations  in  which  they  have  found  employment  in  the 
United  States.  More  recent  immigrants  have  been  drawn 

187 


188  IMMIGRATION  AND  LABOR 

from  the  agricultural  classes  of  southern  and  eastern  Europe, 
having  been  farmers  or  farm  laborers  in  their  native  lands. 
The  only  exception  is  the  Hebrews,  three-fifths  of  whom  were 
engaged  in  some  form  of  manufacturing  or  hand-trades  before 
coming  to  this  country. 

Illiteracy  and  inability  to  speak  English.  The  new  im- 
migrant labor  supply,  owing  to  the  fact  that  it  is  composed 
of  men  of  non-English-speaking  races,  and  is  characterized  by 
a  high  degree  of  illiteracy,  has  been  found  to  possess  but  small 
resources  upon  which  to  develop  industrial  efficiency  and  ad- 
vancement. Owing  to  their  segregation  and  isolation  from 
the  native  American  population  in  living  and  working  con- 
ditions, their  progress  in  acquiring  the  use  of  the  English 
language,  and  in  learning  to  read  and  write,  has  been  very 
slow. 

Their  necessitous  condition.  .  .  .  Immigrants  from  the 
south  and  east  of  Europe  have  usually  had  but  a  few  dollars 
in  their  possession  when  the  port  of  disembarkation  in  this 
country  has  been  reached.  During  the  five  years  from  1905 
to  1909  inclusive  the  average  amount  per  person  among  these 
immigrants  has  been  somewhat  more  than  one-third  as  much 
as  among  immigrants  from  northern  and  western  Europe. 
Consequently,  finding  it  absolutely  imperative  to  engage  in 
work  at  once,  they  have  not  been  in  a  position  to  take  excep- 
tion to  wages  or  working  conditions,  but  must  obtain  employ- 
ment on  the  terms  offered  or  suffer  from  actual  want. 

Standards  of  living.  The  standards  of  living  of  the  recent 
industrial  workers  from  the  south  and  east  of  Europe  have 
also  been  very  low.  Furthermore,  the  recent  immigrants  be- 
ing usually  single,  or,  if  married,  having  left  their  wives 
abroad,  have  in  large  measure  adopted  a  group  instead  of 
a  family  living  arrangement,  and  thereby  have  reduced  their 
cost  of  living  to  a  point  far  below  that  of  the  American  or  of 
the  older  immigrant  in  the  same  industry.  The  method  of 
living  often  followed  is  that  commonly  known  as  the  "board- 
ing-boss" system.  .  .  . 


IMMIGRATION  AND  LABOR  189 

Under  this  general  method  of  living,  which  prevails  among 
the  greater  proportion  of  the  immigrant  households,  the  entire 
outlay  for  necessary  living  expenses  of  each  adult  member 
ranges  from  $9  to  $15  each  month.  The  additional  ex- 
penditures of  the  recent  immigrant  wage-earners  are  small. 
Every  effort  has  been  made  to  save  as  much  as  possible.  The 
entire  life  .interest  and  activity  of  the  average  wage-earner 
from  southern  and  eastern  Europe  has  seemed  to  revolve 
about  three  points:  (1)  to  earn  the  largest  possible  amount 
under  the  existing  conditions  of  work;  (2)  to  live  upon  the 
basis  of  minimum  cheapness,  and  (3)  to  save  as  much  as 
possible.  All  living  arrangements  have  been  subordinated  to 
the  desire  to  reduce  the  cost  of  living  to  its  lowest  level. 
Comfort  seems  not  to  be  considered.  With  such  standards  of 
living  the  older  employees  have  been  unable,  or  have  found 
it  extremely  difficult,  to  compete. 

Lack  of  permanent  interest.  .  .  .  Recent  immigrants  who 
have  sought  work  in  American  industries  as  a  whole  have  mani- 
fested but  a  small  degree  of  permanent  interest  in  their  em- 
ployment or  in  the  industry.  They  have  constituted  a  mobile, 
migratory,  and  disturbing  wage-earning  class,  constrained 
mainly  by  their  economic  interest,  and  moving  readily  from 
place  to  place  according  to  changes  in  working  conditions  or 
fluctuations  in  the  demand  for  labor.  This  condition  of  affairs 
is  made  possible  by  the  fact  that  so  large  a  proportion  of  the 
recent  immigrant  employees  are  single  men,  or  married  men 
whose  wives  are  abroad,  and  by  the  additional  fact  that  the 
prevailing  method  of  living  among  immigrant  workmen  is 
such  as  to  enable  them  to  detach  themselves  from  an  occupa- 
tion or  a  locality  whenever  they  may  wish.  Their  accumula- 
tions also  are  in  the  form  of  cash  or  are  quickly  convertible 
into  cash.  In  brief,  the  recent  immigrant  has  no  property 
or  other  constraining  interests  which  attach  him  to  a  com- 
munity, and  the  larger  proportion  are  free  to  follow  the  best 
industrial  inducements. 

This  characteristic  has  both  a  good  and  a  bad  influence. 


190  IMMIGRATION  AND  LABOR 

It  creates  a  certain  flexibility  in  the  labor  supply,  and  to 
a  certain  extent  brings  about  an  exodus  from  the  country  in 
times  of  depression  and  curtailment  of  employment.  It  also 
causes  an  increased  pressure  and  competition  within  the  coun- 
try. Probably  the  bad  effect  of  this  characteristic  is  greater 
than  the  good,  all  things  considered. 

Tractability  of  the  immigrant.  .  .  .  The  members  of  the 
larger  number  of  races  of  recent  entrance  to  the  mines,  mills 
and  factories  have  been  tractable  and  easily  managed.  This 
quality  seems  to  be  a  temperamental  one,  acquired  through 
past  conditions  of  life  in  their  native  lands.  In  the  normal 
life  of  the  mines,  mills  and  factories,  the  southern  and  east- 
ern Europeans  have  exhibited  a  pronounced  tendency  toward 
being  easily  managed  by  employers  and  toward  being  imposed 
upon  without  protest,  which  has  created  the  impression  of 
subserviency.  This  characteristic,  while  strong,  is  confined, 
however,  to  the  immigrant  wage- earners  of  comparatively  short 
residence  in  this  country,  and  results  from  their  lack  of 
training  or  experience  abroad,  and  from  the  difference  be- 
tween their  standards  and  aspirations  and  those  of  older  im- 
migrant employees  and  native  American  industrial  workers. 

If  the  characteristics  of  the  recent  immigrant  labor  supply 
to  the  United  States,  as  outlined  above,  be  carefully  borne 
in  mind,  the  conditions  which  have  been  produced  by  its 
employment  may  be  quickly  realized. 

Effect  upon  the  use  of  machinery.  .  .  .  The  lack  of  skill 
and  industrial  training  of  the  recent  immigrant  to  the  United 
States  has  stimulated  the  invention  of  mechanical  methods  and 
processes  which  might  be  conducted  by  unskilled  industrial 
workers  as  a  substitute  for  the  skilled  operatives  formerly 
required.  This  condition  of  affairs  obviously  must  have  been 
true,  or  the  expansion  of  American  industry  within  recent 
years  would  not  have  been  possible.  A  large  number  of 
illustrations  of  this  tendency  might  be  cited.  Probably  three 
of  the  best,  however,  are  the  automatic  looms  and  the  ring  spin- 
dles in  the  cotton-goods  manufacturing  industry,  the  bottle- 


IMMIGRATION  AND  LABOR  191 

blowing  and  casting  machines  in  bottle  and  other  glass  factor- 
ies, and  the  machines  for  mining  coal. 

Change  of  the  form  of  industrial  organization.  Another, 
but  more  minor,  general  industrial  effect  of  the  employment 
of  the  southern  and  eastern  Europeans  is  observable  in  the 
increase  in  the  number  of  subforemen  in  many  industries. 
This  situation  arises  principally  from  the  fact  that  the  recent 
immigrants  are  usually  of  non-English-speaking  races,  and 
therefore  require  a  larger  amount  of  supervision  than  the 
native  Americans  and  older  immigrants  from  the  United 
Kingdom  and  northern  Europe.  The  function  of  the  subor- 
dinate foremen  is  chiefly  that  of  an  interpreter. 

As  regards  other  changes  in  industrial  organization  and 
methods,  probably  the  most  important  effect  observable  is 
seen  in  the  creation  of  a  number  of  special  occupations,  the 
incumbents  of  which  perform  all  the  dangerous  or  responsible 
work  which  before  the  employment  of  southern  and  eastern 
Europeans  was  distributed  over  the  entire  operating  force. 
The  best  example  of  this  tendency  is  to  be  found  in  the 
newly  developed  occupation  of  "shot-firer"  in  bituminous 
and  anthracite  coal  mines.  The  mine  worker  in  this  occu- 
pation prepares  and  discharges  the  blasts  or  shots  for  bring- 
ing down  the  coal.  Until  within  recent  years  each  miner  did 
his  own  blasting,  but  with  the  employment  of  the  untrained 
southern  and  eastern  Europeans  in  the  mines,  it  was  soon 
found  that  the  safety  of  the  operating  forces  and  the  main- 
tenance of  the  quality  of  the  output  required  that  blasting 
should  be  done  by  experienced  native  American  or  older 
immigrant  employees.  .  .  . 

Working  conditions.  The  lack  of  industrial  training  and 
experience  of  the  recent  immigrant  before  coming  to  the 
United  States,  together  with  his  illiteracy  and  inability 
to  speak  English,  has  had  the  effect  of  exposing  the  original 
employees  to  unsafe  and  unsanitary  working  conditions,  or  has 
led  to  the  imposition  of  conditions  of  employment  which  the 
native  American  or  older  immigrant  employees  have  con- 


192  IMMIGRATION  AND  LABOR 

sidered  unsatisfactory  and  in  some  cases  unbearable.  When 
the  older  employees  have  found  dangerous  and  unhealthy  con- 
ditions prevailing  in  the  mines  and  manufacturing  establish- 
ments and  have  protested,  the  recent  immigrant  employees, 
usually  through  ignorance  of  mining  or  other  working  meth- 
ods, have  manifested  a  willingness  to  accept  the  alleged  un- 
satisfactory conditions.  In  a  large  number  of  cases  the  lack 
of  training  and  experience  of  the  southern  and  eastern 
European  affects  only  his  own  safety.  On  the  other  hand, 
his  ignorant  acquiescence  in  dangerous  and  unsanitary  work- 
ing conditions  may  make  the  continuance  of  such  conditions 
possible  and  become  a  menace  to  a  part  or  to  the  whole  of  an 
operating  force  of  an  industrial  establishment.  In  mining, 
the  presence  of  an  untrained  employee  may  constitute  an  ele- 
ment of  danger  to  the  entire  body  of  workmen.  There  seems 
to  be  a  direct  causal  relation  between  the  extensive  employment 
of  recent  immigrants  in  American  mines  and  the  extraordinary 
increase  within  recent  years  in  the  number  of  mining  acci- 
dents. It  is  an  undisputed  fact  that  the  greatest  number 
of  accidents  in  bituminous  coal  mines  arise  from  two  causes: 
(1)  the  recklessness,  and  (2)  the  ignorance  and  inexperience 
of  employees.  When  the  lack  of  training  of  the  recent  im- 
migrant abroad  is  considered  in  connection  with  the  fact 
that  he  becomes  a  workman  in  the  mines  immediately  upon  his 
arrival  in  this  country,  and  when  it  is  recalled  that  a  large 
proportion  of  the  new  arrivals  are  not  only  illiterate  and 
unable  to  read  any  precautionary  notices  posted  in  the  mines, 
but  also  unable  to  speak  English  and  consequently  without 
ability  to  comprehend  instructions  intelligently,  the  inference 
is  plain  that  the  employment  of  recent  immigrants  has  caused 
a  deterioration  in  working  conditions. 

No  complete  statistics  have  been  compiled  as  to  the  con- 
nection between  accidents  and  races  employed,  but  the  figures 
available  clearly  indicate  the  conclusion  that  there  has  been 
a  direct  relation  between  the  employment  of  untrained  for- 
eigners and  the  prevalence  of  mining  casualties.  The  mining 


IMMIGRATION  AND  LABOR  193 

inspectors  of  the  several  coal-producing  States,  the  United 
States  Geological  Survey,  and  the  older  employees  in  the  in- 
dustry, also  bear  testimony  in  this  respect  to  the  effect  of 
the  employment  of  the  southern  and  eastern  European.  The 
opinion  of  the  Geological  Survey  is  of  especial  interest  and 
may  be  briefly  quoted: 

Another  important  factor  in  the  United  States  is  to  be  found  in  the 
nationality  of  the  miners.  Most  of  the  men  are  foreign-born,  a  large 
proportion  of  them  are  unable  to  understand  English  freely,  and  a 
still  larger  number  are  unable  to  read  or  write  that  language.  Some 
of  them  are  inexperienced  and  do  not  take  proper  precautions  either 
for  their  own  safety  or  that  of  others.  This  becomes  a  most  serious 
menace  unless  they  are  restrained  by  properly  enforced  regulations.  .  .  . 

The  immigrant  and  labor  organizations.  The  entrance  into 
operating  forces  of  the  mines  and  manufacturing  establish- 
ments, in  such  large  numbers,  of  the  races  of  recent 
immigration,  has  also  had  the  effect  of  weakening  the  labor 
organizations  of  the  original  employees,  and  in  some  of  the 
industries  has  caused  their  entire  demoralization  and  disrup- 
tion. This  has  been  due  to  the  character  of  the  recent  immi- 
grant labor  supply,  and  to  the  fact  that  so  large  numbers  of 
recent  immigrants  have  found  employment  in  American  in- 
dustries within  such  a  short  period  of  time.  On  account  of 
lack  of  industrial  training  and  experience,  low  standards  of 
living,  as  compared  with  native  American  wage-earners,  their 
necessitous  condition  on  coming  to  this  country  and  their 
tractability,  southern  and  eastern  Europeans,  as  already 
noted,  have  been  willing  to  accept  the  existing  rates  of  com- 
pensation and  working  conditions.  The  thriftiness  and  in- 
dustriousness  of  recent  immigrants  have  also  made  them 
unwilling  to  enter  into  labor  disputes  involving  loss  of  time, 
or  to  join  labor  organizations  to  which  it  is  necessary  to  pay 
regular  dues.  As  a  consequence,  they  have  not  affiliated  with 
labor  organizations  unless  compelled  to  do  so  as  a  preliminary 
step  toward  acquiring  work;  and  then,  after  becoming  mem- 
bers of  the  labor  union,  they  have  manifested  but  little  in- 

13 


194  IMMIGRATION  AND  LABOR 

terest  in  the  tenets  or  policy  of  the  organization.  In  the 
instances  where  they  have  united  with  the  labor  organizations, 
on  the  occasion  of  strikes  or  labor  dissensions,  they  have  usu- 
ally refused  to  maintain  membership  for  any  extended  period 
of  time,  thus  rendering  difficult  the  unionization  of  the  indus- 
try or  occupation  in  which  they  are  engaged. 

Furthermore,  the  fact  that  recent  immigrants  are  usually 
of  non-English-speaking  races,  and  their  high  degree  of 
illiteracy,  have  made  their  absorption  by  the  labor  organiza- 
tions very  slow  and  expensive.  In  many  cases,  too,  the  con- 
scious policy  of  the  employers  of  mixing  the  races  in  different 
departments  and  divisions  of  labor,  in  order,  by  a  diversity 
of  tongues,  to  prevent  concerted  action  on  the  part  of  em- 
ployees, has  made  unionization  of  the  immigrant  almost  im- 
possible. 

The  significant  result  of  the  whole  situation  has  been  that 
the  influx  of  the  southern  and  eastern  Europeans  has  been  too 
rapid  to  permit  of  their  absorption  by  the  labor  organizations 
which  were  in  existence  before  their  arrival.  In  some  indus- 
tries the  influence  and  power  of  the  labor  unions  are  con- 
cerned only  with  those  occupations  in  which  the  competition  of 
the  southern  and  eastern  European  has  been  only  indirectly 
or  remotely  felt,  and  consequently  the  labor  organizations 
have  not  been  very  seriously  affected.  In  the  occupations 
and  industries  in  which  the  pressure  of  the  competi- 
tion of  the  recent  immigrant  has  been  directly  felt,  either 
because  the  nature  of  the  work  was  such  as  to  permit  of  the 
immediate  employment  of  the  immigrant  or  through  the  inven- 
tion of  improved  machinery  his  employment  was  made  possible 
in  occupations  which  formerly  required  training  and  appren- 
ticeship, the  labor  organizations  have  been,  in  a  great  many 
cases,  completely  overwhelmed  and  disrupted.  In  other  indus- 
tries and  occupations  in  which  the  elements  of  skilled  train- 
ing and  experience  were  requisite,  such  as  in  certain  divisions 
of  the  glass-manufacturing  industry,  the  effect  of  the  employ- 


IMMIGRATION  AND  LABOR  195 

ment  of  recent  immigrants  upon  labor  organizations  has  not 
been  followed  by  such  injurious  results. 

Racial  displacement.  Competition  of  the  southern  and 
eastern  European  has  led  to  a  voluntary  or  involuntary  dis- 
placement, in  certain  occupations  and  industries,  of  the  native 
American  and  of  the  older  immigrant  employees  from  Great 
Britain  and  northern  Europe.  These  racial  displacements 
have  manifested  themselves  in  three  ways : 

(a)  A  large  proportion  of  native  Americans  and  older 
immigrant    employees    from    Great    Britain    and    northern 
Europe  have  left  certain  industries,  such  as  bituminous  and 
anthracite  coal  mining  and  iron  and  steel  manufacturing. 

(b)  A  part  of  the  earlier  employees  who  remained  in  the 
industries  in  which  they  were  employed  before  the  advent  of 
the  southern  and  eastern  European,  have  been  able,  because 
of  the  demand  growing  out  of  the  general  industrial  expan- 
sion, to  rise  to  more  skilled  and  responsible  executive  and 
technical  positions  which  required  employees  of  training  and 
experience.     In  the  larger  number  of  cases,  however,  where 
the  older  employees  remained  in  a  certain  industry  after  the 
pressure  of  the  competition  of  the  recent  immigrant  had  be- 
gun to  be  felt,  they  relinquished  their  former  positions  and 
segregated   themselves   in   certain   other   occupations.     This 
tendency  is  best  illustrated  by  the  distribution  of  employees 
according  to  race  in  bituminous  coal  mines.     In  this  industry 
all  the  so-called  "  company "  occupations,  which  are  paid  on 
the  basis  of  a  daily,  weekly,  or  monthly  rate,  are  filled  by 
native  Americans  or  older  immigrants  and  their  children, 
while  the  southern  and  eastern  Europeans  are  confined  to 
pick  mining  and  the  unskilled  and  common  labor.     The  same 
situation  exists  in  other  branches  of  manufacturing  enter- 
prise.    A  stigma  has  become  attached  to  the  working  in  the 
same  occupations  as  the  southern  and  eastern  European  so 
that,  in  some  cases,  as  in  the  bituminous  coal  mining  industry, 
the  older  class  of  employees  segregate  in  occupations  which, 


196  IMMIGRATION  AND  LABOR 

from  the  standpoint  of  compensation,  are  less  desirable  than 
those  occupied  by  recent  immigrants.  In  most  industries  the 
native  American  and  older  immigrant  workmen  who  have 
remained  in  the  same  occupations  in  which  the  recent  immi- 
grants are  predominant  are  the  thriftless,  unprogressive 
elements  of  the  original  operating  forces. 

Another  striking  feature  of  the  competition  of  southern 
and  eastern  Europeans  is  the  fact  that  in  the  case  of  most 
industries,  such  as  iron  and  steel,  textile  and  glass  manu- 
facturing, and  the  different  forms  of  mining,  the  children  of 
native  Americans  and  of  the  older  immigrants  from  Great 
Britain  and  northern  Europe  are  not  entering  the  industries 
in  which  their  fathers  have  been  employed.  All  classes  of 
manufacturers  claim  that  they  are  unable  to  secure  a  sufficient 
number  of  native-born  employees  to  insure  the  development  of 
the  necessary  number  of  workmen  to  fill  the  positions  of 
skill  and  responsibility  in  their  establishments.  This  con- 
dition of  affairs  is  attributed  to  three  factors:  (1)  General 
or  technical  education  has  enabled  a  considerable  number  of 
the  children  of  industrial  workers  to  command  business,  pro- 
fessional or  technical  occupations  apparently  more  desirable 
than  those  of  their  fathers.  (2)  The  conditions  of  work 
which  have  resulted  from  the  employment  of  recent  immi- 
grants have  rendered  certain  industrial  occupations  unat- 
tractive to  the  wage-earner  of  native  birth.  (3)  Occupations 
other  than  those  in  which  southern  and  eastern  Europeans 
are  engaged  are  sought  for  the  reason  that  popular  opinion 
attaches  to  them  a  more  satisfactory  social  status  and  a  higher 
degree  of  respectability.  Whatever  may  be  the  cause  of  this 
aversion  of  older  employees  to  working  by  the  side  of  the 
new  arrivals,  the  existence  of  the  feeling  has  been  crystallized 
into  one  of  the  most  potent  causes  of  racial  substitution  in 
manufacturing  and  mining  occupations. 

Effects  upon  wages  and  hours  of  work.  .  .  .  There  is  no 
evidence  to  show  that  the  employment  of  southern  and  east- 
ern European  wage-earners  has  caused  a  direct  lowering  of 


IMMIGRATION  AND  LABOR  197 

wages  or  an  extension  in  the  hours  of  work  in  mines  and 
industrial  establishments.  It  is  undoubtedly  true  that  the 
availability  of  the  large  supply  of  recent  immigrant  labor 
prevented  the  increase  in  wages  which  otherwise  would  have 
resulted  during  recent  years  from  the  increased  demand  for 
labor.  ...  As  a  general  proposition,  it  may  be  said  that  all 
improvements  in  conditions  and  increases  in  rates  of  pay  have 
been  secured  in  spite  of  their  presence.  The  recent  immigrant, 
in  other  words,  has  not  actively  opposed  the  movements  to- 
ward better  conditions  of  employment  and  higher  wages, 
but  his  availability  and  his  general  characteristics  and  atti- 
tude have  constituted  a  passive  opposition  which  has  been  most 
effective. 

General  conclusions.  (1)  The  influx  of  recent  immigrants 
has,  by  affording  an  adequate  labor  supply,  made  possible 
the  remarkable  expansion  in  mining  and  manufacturing  in 
the  United  States  during  the  past  thirty  years. 

(2)  The   extensive   employment   of  southern   and   eastern 
Europeans  has  seriously  affected  the  native  Americans  and 
older  immigrant  employees  from  Great  Britain  and  north- 
ern Europe  by  causing  displacements  and  by  retarding  ad- 
vancement in  rates  of  pay  and  improvements  in  conditions  of 
employment. 

(3)  Industrial  efficiency  among  the  recent  immigrant  wage- 
earners  has  been  very  slowly  developed,  owing  to  their  illit- 
eracy and  inability  to  speak  English. 

(4)  For  these  same  reasons  the  general  progress  toward 
assimilation  and  the  attainment  of  American  standards  of 
work  and  living  has  also  been  very  slow. 

(5)  The  conclusion  of  greatest  significance  developed  by 
the  general  industrial  investigation  of  the  United  States  Immi- 
gration Commission  is  that  the  point  of  complete  saturation 
has  already  been  reached  in  the  employment  of  recent  immi- 
grants in  mining  and  manufacturing  establishments.     Owing 
to  the  rapid  expansion  in  industry  which  has  taken  place 
during  the  past  thirty  years,  and  the  constantly  increasing 


198  IMMIGRATION  AND  LABOR 

employment  of  southern  and  eastern  Europeans,  it  has  been 
impossible  to  assimilate  the  newcomers,  politically  or  socially, 
or  to  educate  them  to  American  standards  of  compensation, 
efficiency  or  conditions  of  employment. 

(6)  Too  much  emphasis,  in  the  discussion  of  immigration 
within  recent  years,  has  been  placed  upon  the  social  and 
political  results  of  recent  immigration  vastly  important  as 
they  are.  The  problem  at  present  is  really  fundamentally 
an  industrial  one,  and  should  be  principally  considered  in 
its  economic  aspects. 


.WAGES  AND  COST  OF  LIVING 

[IN  "A  comparative  study  of  railway  wages  and  the  cost  of  living," 
etc.  (Bulletin  34  of  the  Bureau  of  Railway  Economics,  Washington, 
D.  C.,  June,  1912,  L.  G.  McPherson,  Director;  F.  H.  Dixon,  Chief 
Statistician),  summaries  are  made  of  various  official  reports  on  the 
subject,  including  the  recent  report  of  the  British  Board  of  Trade. 
The  following  are  the  main  conclusions,  conveniently  summarized  by 
the  Bureau  (p.  5) :] 

Railway  wages.  Information  is  not  obtainable  upon  which 
can  be  based  a  comprehensive  statement  of  railway  wages 
being  paid  at  this  time  in  the  different  countries.  There- 
fore it  is  necessary  to  make  comparisons  for  the  latest  year 
for  which  comparable  data  are  available. 

The  average  daily  compensation  of  railway  employees  of  all 
classes  for  the  year  1910  was  in  the  United  States,  $2,23; 
in  the  United  Kingdom,  $1.05;  excluding  supplementary  al- 
lowances negligibly  affecting  the  average,  it  was  in  Prussia- 
Hesse  81  cents,  and  in  Austria  89  cents.  The  lowest  paid 
railway  employee  in  the  United  States,  the  ordinary  track- 
man, receives  a  greater  compensation  than  many  of  the  rail- 
way employees  of  France,  even  those  of  higher  grades  and 
with  responsible  duties.  The  compensation  of  railway  em- 
ployees is  from  two  to  three  times  as  high  in  the  United  States 
as  in  Italy. 

A  recent  report  of  the  Board  of  Trade  on  railway  wages 
shows  that  the  average  weekly  pay  of  enginemen  in  the  United 
Kingdom  in  1907  was  $11.17;  of  firemen,  $6.67.  In  the  same 
year  enginemen  on  American  railways  received  an  average 
weekly  compensation  of  $25.80,  counting  six  days  to  the  week, 
and  firemen  $15.24.  Recent  returns  make  it  clear  that  in  1912 
enginemen  and  firemen  in  the  United  States  are  compensated 

199 


200  WAGES  AND  COST  OF  LIVING 

at  rates  of  pay  for  specific  runs  that  are  two,  three  and  four 
times  as  high  as  the  corresponding  rates  on  representative 
English  railways.  The  annual  compensation  of  enginemen  in 
the  United  States,  as  reported  by  two  representative  rail- 
way companies,  now  ranges  from  $1,100  in  switching  service 
to  over  $2,800  in  passenger  service,  and  of  firemen  from  $700 
in  switching  service  to  over  $1,700  in  passenger  service. 

For  Continental  Europe  official  returns  in  requisite  detail 
are  not  available  for  a  later  year  than  1908.  The  salaries  and 
allowances  of  the  typical  engineman  in  Germany  amounted  for 
that  year  to  $646.88,  in  Austria  to  $870.80 ;  of  a  fireman  in 
Germany  to  $424.59,  in  Austria  to  $532.03.  The  annual 
compensation  of  enginemen  on  two  of  the  principal  railways 
of  France  ranged  in  1908  from  $505.66  to  $906.91,  and  of 
firemen  from  $324.24  to  $595.98.  In  Italy  enginemen  re- 
ceived in  1908,  salary  and  allowances  included,  from  $581.10 
to  $812.70  a  year;  firemen,  from  $330.30  to  $475.05  a  year. 
In  these  Continental  countries  the  maximum  compensation 
is  received  only  after  many  years  of  service. 

The  average  annual  compensation  of  enginemen  in  the 
United  States  in  1908,  on  an  estimated  basis  of  300  days' 
service,  was  $1,335;  of  firemen,  $792.  In  this  country  the 
rate  of  compensation  to  these  employees  does  not  depend  on 
length  of  service. 

In  Belgium  enginemen  received  in  1907  from  $23.16  to 
$38.60  a  month;  firemen,  from  $17.37  to  $23.16  a  month; 
conductors  and  station  employees,  from  46  cents  to  96  cents 
a  day.  In  the  United  States,  in  the  same  year  1907,  engine- 
men  averaged,  on  the  basis  of  25  days'  service,  $107.50  a 
month;  firemen,  $63.50  a  month;  conductors,  $3.69  a  day; 
station  employees,  from  $1.78  to  $2.05  a  day. 

An  accurate  wage  comparison  must  take  into  account  rel- 
ative cost  of  living,  and  this  has  been  done,  so  far  as  ascer- 
tainable  data  permits. 

Rents  [page  60].  The  material  regarding  rents  gathered 
by  the  British  Board  of  Trade  in  its  investigations  into  cost 


WAGES  AND  COST  OF  LIVING 


201 


of  living  may  be  summarized  in  the  following  tabular  state- 
ment. The  statistics  relate  to  the  housing  accommodations  of 
the  kind  and  grade  usually  occupied  by  workingmen's  families 
in  the  different  countries. 


Country. 
United  States  

EENTAL 

Two 
rooms. 

PEE  YEAB.l 

Three 
rooms. 
$85  —  121 

Four 
rooms. 
$110—152 

Five 
rooms. 
$146  —  189 

England  and  Wales  2 

$38—44 
57—95 

47—  57 
76—114 

57—  70 
95  —  133 

70—  82 
114  —  164 

48  —  54 

66  —  81 

32  —  44 

50—  63 

70  —  85 

30  —  36 

37—  53 

44—  55 

Paris    

39—78 

58  —  94 

78  —  97 

34—44 

44  —  60 

54  —  76 

Berlin  

63—76 

88  —  117 

Belgium  . 

22—29 

28—  36 

34—  44 

The  Board  of  Trade  found  that  the  predominant  type  of 
dwelling  in  the  United  States  and  in  England  and  Wales 
was  the  four-  or  five-room  house.  The  English  house  usually 
possesses,  in  addition,  a  scullery,  or  back  kitchen.  In  the 
other  European  countries  the  houses,  or  in  some  instances 
flats,  contained  a  smaller  number  of  rooms,  usually  from  two 
to  three  or  from  three  to  four.  That  is,  the  standard  of 
housing  was  higher,  on  the  average,  in  the  United  States  and 
England  than  elsewhere.  "With  this  fact  in  mind,  it  becomes 
clear  that  a  comparison  of  rental  expenditures,  for  example, 
of  the  United  States  and  France,  would  involve  setting  the 
rental  value  of  a  four-room  house  in  the  United  States  over 
against  that  of  a  three-room  house  or  flat  in  France.  Such 
a  comparison  would  undoubtedly  be  proper  and  fair,  but 
in  the  interest  of  caution  rental  values  of  the  same  grade  of 

1  Inasmuch  as  local  rates,  or  taxes,  in  the  United  Kingdom  are  paid  by 
the  occupier  of  a  house,  they  are  included  in  the  rentals  here  reported 
for  the  United  Kingdom,  but  not  for  the  other  countries.     The  burden  of 
taxation  must  in  the  last  analysis  fall  on  the  renter,  whether  the  tax  is 
paid  directly  by  him  or  by  the  owner;  this  being  true,  no  deduction  is 
made  in  this  table  of  the  tax  paid  by  the  British  occupier. 

2  Exclusive  of  London. 


202  WAGES  AND  COST  OF  LIVING 

accommodation  are  here  compared,  regardless  of  standards 
of  housing  in  the  several  countries. 

The  rental  value  of  a  three-room  house  or  flat  in  the  United 
States  is  higher  than  in  any  other  country.  In  fact,  with 
the  exception  of  London,  Paris  and  Berlin,  the  minimum 
value  of  such  accommodation  in  the  United  States  is  higher 
than  the  maximum  value  of  the  same  accommodation  else- 
where. The  same  is  true  of  four-room  houses  or  flats,  again 
excepting  London.  Data  are  not  available  for  two-room 
accommodations.  .  .  . 

The  range  of  rents  may  be  standardized  by  taking  the 
median  or  halfway  point  as  the  type  in  each  case.  .  .  . 

TYPICAL  ANNUAL  RENTALS. 

Country.  Three  rooms.  Four  rooms.  Five  rooms. 

United  States $102  $131              $167 

England  and  Walesa 52  63  76 

London   95  114  139 

Scotland   •          73 

Ireland    56  77 

France 45  49 

Paris  76  87 

Germany    52  65 

Berlin   102 

Belgium    32  39 

a  Exclusive  of  London. 

This  table,  while  only  approximate,  shows  clearly  that 
rental  values  in  the  United  States  range  considerably  higher 
than  in  the  several  European  countries  under  consideration. 

[The  examination  of  a  table  of  prices  of  standard  grades  of  com- 
modities leads  to  the  following  conclusions.] 

Comparative  costs  of  living  [page  66].  The  comparison 
made  by  the  Board  of  Trade  of  the  cost  of  living  in  Eng- 
land and  Wales  with  that  in  France  shows  that  an  English 
workingman  transported  to  France  would  pay  for  the  same 
standard  of  comfort  about  18  per  cent,  more  than  he  does 
in  England.  If  coal  be  excluded,  he  would  pay  11  per  cent, 
more.  Conversely,  a  French  workingman  would  pay  in  Eng- 


WAGES  AND  COST  OF  LIVING  20S 

land  about  5.7  per  cent,  less  for  the  same  standard  of  com- 
fort than  he  is  paying  in  France. 

The  English  workingman,  transported  to  Germany  and  liv- 
ing at  his  own  standard  of  comfort,  would  pay  18  per  cent, 
more  than  he  is  paying  in  England.  This  excludes  a  com- 
parison of  tea  and  coffee.  Conversely,  a  German  working- 
man  transported  to  England,  and  living  at  his  old  standard 
of  comfort,  would  find  that  his  English  price  level  was  about 
7.4  per  cent,  lower  than  it  was  in  Germany. 

Excluding  commodities  for  which  comparative  prices  could 
not  be  secured,  the  English  workingman  who  moved  to  Bel- 
gium would  find  his  budget  increased  by  2  per  cent.,  or  if 
coal  were  excluded,  slightly  decreased.  Conversely,  a  Bel- 
gian workingman  moving  to  England  would  find  his  cost  of 
living  increased  by  about  2  per  cent.,  or  if  coal  were  excluded, 
increased  by  slightly  over  5  per  cent. 

An  English  family  moving  to  the  United  States  and  main- 
taining its  regular  standard  of  living,  would  find  its  budget- 
ary expenses  increased  by  38  per  cent.  Conversely,  an 
American  family  would  pay  20  per  cent,  less  for  its  accustomed 
dietary  if  it  moved  to  England  than  it  is  now  paying  in  the 
United  States.  These  comparisons  between  the  cost  of  liv- 
ing in  England  and  the  United  States  relate  to  the  year 
1909,  a  special  investigation  being  made  into  English  prices 
in  February,  1909,  to  provide  a  budgetary  basis  comparable 
with  that  of  the  United  States. 

Combining  these  various  comparisons,  and  bringing  them 
to  a  common  basis,  the  following  are  the  results.  An  Eng- 
lish family  which  was  transferred  in  turn  to  the  respective 
countries  named  below  and  maintained  its  normal  standard 
of  living,  would  find  its  expenditures  for  food  and  fuel  to 
stand  in  the  following  relations  to  its  expenditures  in  Eng- 
land, the  latter  being  taken  as  par,  or  100  per  cent. : 

In  England  and  Wales 100  per  cent. 

In   Belgium 102     "      " 

In  France 118     "       " 

In  Germany 118     "       " 

In  the  United  States 138    «      ff 


204:  WAGES  AND  COST  OF  LIVING 

From  this  it  will  be  seen  that  the  cost  of  living  in  the  United 
States,  compared  with  that  of  France,  is  in  the  ratio  of  138 
to  118,  or  117.8  per  cent. — that  is,  it  is  17.8  per  cent,  higher 
than  in  France.  Similarly,  the  cost  of  living  in  the  United 
States  is 

17.8  per  cent,  higher  than  in  Germany, 

35.3  per  cent,  higher  than  in  Belgium,  and 

38.0  per  cent,  higher  than  in  the  United  Kingdom. 

This  is  not  a  complete  statement  of  the  situation,  inasmuch 
as  it  takes  into  account  only  those  articles,  and  in  only  those 
proportions,  used  by  the  British  workingman  in  his  dietary. 
His  standard  would  doubtless  rise  in  moving  to  the  United 
States;  but  for  the  same  standard  of  living,  the  foregoing 
comparisons  hold. 

Budgets.  The  Board  of  Trade,  in  its  investigations,  made  a 
study  of  budgets  of  workingmen's  families  in  the  five  coun- 
tries studied.  Below  will  be  found  a  brief  resume,  presented 
on  a  per  capita  basis : 

EXPENDITURES  FOB  FOOD  PEB  CAPITA. 

Per  week.  Per  year. 

United  States $1.78  $92.33 

France   1.20  62.40 

Germany    98  50.96 

United  Kingdom 98  60.85 

Belgium 94  49.12 

Thus  the  actual  expenditure  of  the  average  American 
workingman  for  food  in  the  northern  part  of  the  United 
States  is  seen  to  be  greater  than  that  of  the  average  work- 
ingman in  France  by  48.0  per  cent. ;  greater  than  that  of  the 
workingman  in  Germany  by  81.2  per  cent. ;  greater  than  that 
of  the  workingman  in  England  and  Wales  by  81.6  per  cent. ; 
and  greater  than  the  amount  spent  by  the  workingman  of 
Belgium  by  88.0  per  cent. 

The  United  States  and  England  and  Wales  [page  68]. 
The  English-American  comparison  of  the  cost  of  living,  as 
ascertained  by  the  British  Board  of  Trade  in  1909,  rests 


WAGES  AND  COST  OF  LIVING  205 

on  returns  secured  from  but  three  trades — the  building,  the 
engineering,  and  the  printing  trades.  .  .  . 

On  the  average  the  wages  of  the  American  workman  were 
higher  than  those  of  the  English  by  130  per  cent. ;  his  hours 
of  work  per  week  were  fewer  by  4  per  cent ;  his  payments  for 
rent  for  the  same  kind  and  amount  of  house  accommodation 
were  higher  by  107  per  cent.;  the  retail  prices  of  his  food, 
weighted  according  to  the  consumption  shown  in  the  British 
budgets  were,  as  has  earlier  been  shown,  higher  by  38  per 
cent.  Put  more  briefly,  it  is  found  that  while  the  wages 
of  the  American  workman  are  the  higher  by  130  per  cent., 
his  expenditures  for  food  and  rent  combined,  on  the  British 
standard  of  living,  are  the  higher  by  only  52  per  cent.  A 
much  greater  margin  over  the  expenditures  for  food  and 
rent  is,  therefore,  available  in  the  United  States  than  in 
England  and  Wales.  This  margin,  says  the  report  of  the 
Board  of  Trade,  "  makes  possible  a  command  of  the  neces- 
saries and  conveniences  of  life  that  is  both  nominally  and 
really  greater  than  that  enjoyed  by  the  corresponding  class 
in  this  country  ( England ) . " 


COTTON-MILL  EFFICIENCY  AND  MACHINERY 

[FROM  the  Tariff  Board  Report  on  Cotton  Manufactures,  the  follow- 
ing extracts  are  taken,  showing  the  use  of  automatic  machinery  in 
America  as  compared  with  England.  (House  Document  No.  643,  62d 
Congress,  2d  session,  p.  468.)] 

Factory  organizations  compared.  Contrary  to  the  pre- 
vailing organization  in  the  cotton  industry  in  England,  the 
mills  in  this  country  have  both  spinning  and  weaving  de- 
partments. 

The  spinning  mill  is,  as  a  rule,  equipped  with  sufficient 
machinery  to  produce  all  the  yarn,  both  warp  and  filling, 
necessary  for  the  continuous  operation  of  the  weaving  mill. 
There  are  a  few  mills  manufacturing  specialties,  where,  on 
account  of  the  variety  of  yarns  required  and  the  small  quan- 
tity of  each  number  used  or  the  special  processing  necessary, 
it  is  impracticable  to  operate  a  spinning  mill,  and  in  such 
cases  the  yarn  is  purchased  from  spinning  mills  manufacturing 
special  numbers  of  yarn,  for  which  they  find  a  ready  market. 
Where  it  is  necessary  for  a  spinning  mill  to  manufacture 
a  wide  range  of  yarns  for  the  supply  of  the  weaving  mill,  it 
follows  that  the  manufacture  cannot  be  carried  on  as  eco- 
nomically per  unit  of  production  as  in  the  mill  where  the  pro- 
duction is  limited  to  the  manufacture  of  but  few  numbers 
of  yarns. 

Many  American  mills,  especially  in  the  North,  produce  a 
wide  variety  of  cloths,  involving  the  use  of  many  different 
kinds  of  yarn  from  coarse  to  very  fine.  On  the  other  hand, 
some  mills  weaving  principally  plain  constructions  are  re- 

206 


COTTON-MILL  EFFICIENCY  207 

quired  for  their  own  needs  to  spin  only  a  narrow  range  of 
yarns,  frequently  but  one  warp  and  several  fillings.  In  the 
case  of  the  former  mills,  the  American  practice  puts  them  at 
a  disadvantage  with  English  spinning  mills  which  produce 
yarns  of  more  uniform  count  for  a  regular  market.  In  the 
case  of  the  latter  class  of  mills  the  advantage  of  the  specializa- 
tion which  exists  in  the  English  industry  seems  to  be  fully 
offset. 

In  the  United  States  most  of  the  yarn  is  manufactured  on 
ring  spindles,  as  against  the  English  method  of  mule  spin- 
ning. The  production  of  yarn  by  ring  spinning  is  greater 
per  spindle  than  mule  spinning,  though  the  mule-spun  yarn 
is  more  even  in  density  and  softer  in  finish.  .  .  . 

Cotton  waste.  Only  a  part  of  the  raw  cotton  input  of  the 
mills  reaches  the  yarn  in  its  finished  state.  Through  each 
operation,  as  picking,  carding,  spinning,  etc.,  there  is  a  loss 
of  some  of  the  original  stock  known  as  waste.  A  part  of 
this  waste,  which  is  chiefly  due  to  evaporation,  is  not  re- 
covered, and  this  is  termed  "invisible  waste."  The  percen- 
tage of  waste  in  a  mill  is  a  varying  quantity,  due  in  part  to  the 
length  of  the  fiber  of  the  raw  cotton  and  the  fineness  of  the 
number  of  the  yarn  spun.  In  mills  producing  coarse  yarns 
where  it  is  possible  to  rework  part  of  the  waste  the  loss  is 
not  over  10  per  cent,  of  the  input  of  raw  cotton,  while  in 
the  mills  producing  higher  or  finer  numbers  of  yarns  the  loss 
will  approximate  35  per  cent.  All  of  the  waste,  except  that 
known  as  invisible  waste,  which  does  not  amount  to  more 
than  3  or  4  per  cent.,  is  recovered  and  reworked  or  sold.  .  .  . 

Conditions  influencing  efficiency.  The  efficiency  of  the 
weaving  mills  is  affected  by  numerous  conditions,  making  it 
impracticable  to  accurately  present  these  conditions  in  any 
tabular  statement.  No  two  weaving  mills  are  affected  by 
exactly  the  same  conditions,  there  being  a  difference  either  in 
the  loom  equipment,  the  size  and  breaking  .strength  of  the 
yarn  used,  or  the  organization  of  the  cloth  produced. 


208  COTTON-MILL  EFFICIENCY 

During  the  course  of  the  inquiry  the  agents  of  the  Tariff 
Board  found  that  a  number  of  mills  originally  constructed  to 
manufacture  plain  print  cloth  are  now  producing  fancy  cloth 
of  simple  design  or  construction.  The  manufacturers  stated 
that  this  change  was  necessitated  by  a  lack  of  demand  for  the 
print  cloth,  and  that  while  the  production  of  each  loom  appro- 
priated for  fancy  constructions  was  decreased,  the  better 
demand  for  fancy  cloth  more  than  offset  the  loss  due  to  de- 
creased production.  This  change  often  made  it  necessary  to 
weave  a  much  narrower  cloth  than  that  for  which  the  loom  was 
best  adapted,  and  there  is  also  a  loss  that  must  be  reckoned 
due  to  idle  looms  where  any  considerable  amount  of  changing 
from  one  construction  to  another  is  necessitated. 

The  breaking  of  a  warp  or  filling  yarn  requires  that  the 
loom  be  stopped  and  the  difficulty  be  adjusted.  Some  of 
the  looms  are  equipped  with  automatic  stop-motion  attach- 
ments, which  automatically  stop  the  loom  whenever  a  warp 
or  filling  yarn  is  broken.  This  makes  it  possible  for  a  weaver 
to  attend  a  greater  number  of  looms,  a  lesser  degree  of  watch- 
fulness being  required. 

Some  of  the  factors  which  affect  the  efficiency  of  a  cotton 
mill  are  discussed  in  connection  with  the  following  tables. 

Weaving  costs  with  automatic  and  plain  looms.  In  or- 
der to  show  the  exact  difference  in  cost  of  production  that  can 
be  directly  attributed  to  the  efficiency  of  a  plant,  the  follow- 
ing illustration  is  given: 

(In  ...  the  comparisons  of  costs  which  follow,  the  labor 
cost  of  yarn  per  pound  of  cloth  includes  the  total  labor  in 
the  " spinning  mill,"  or  through  the  spooling  process,  and 
the  labor  cost  of  weaving  per  pound  of  cloth  includes  all  the 
remaining  productive  labor  in  the  mill.  This  also  applies 
to  the  division  of  the  works  expense  in  the  cost  of  yarn  and 
weaving)  .  .  .  [One  table  omitted  here.] 

The  exact  difference  in  the  cost  of  manufacture  between 
plain  and  automatic  looms  under  similar  conditions  is  shown 
in  the  following  illustration : 


COTTON-MILL  EFFICIENCY  209 


Automatic         Plain 
looms.  looms. 

Width,  linear  yards  per  pound 38%  —  5.50 

Sley  x  picks 64  X  64 

Warp  and  filling  yarns 

Labor  cost  of  yarn  per  pound  of  cloth 0.033012         0.033254 

Labor  cost  of  weaving  per  pound  of  cloth 028110  .046250 

Total  labor  cost  per  pound  of  cloth 061122          .079504 


Works  expense  cost  of  yarn  per  pound  of  cloth     .016719  .017036 

Works  expense  cost  of  weaving  per  pound  of  cloth     .013300  .014660 

Total  works  expense  per  pound  of  cloth. .     .030019  .031696 

Depreciation  cost  per  pound  of  cloth. 017988  .018765 

Total  conversion  cost  per  pound  of  cloth 109129  .129965 

Cotton  cost  per  pound  of  cloth 165067  .165067 

Total  cost  per  pound  of  cloth 274196  .295032 

Total  cost  per  yard  of  cloth 049494  .053255 

In  this  comparison  two  costs  are  given  on  the  same  cloth 
woven  in  the  same  mill,  but  one  on  automatic  looms  and  the 
other  on  plain  looms.  It  will  be  seen  that  the  total  cost  per 
pound  of  cloth  on  plain  looms  is  a  little  over  two  cents  higher 
than  that  on  automatic  looms,  this  difference  being  almost 
entirely  in  the  labor  cost  of  weaving.  Keduced  to  a  yard- 
age basis,  this  results  in  the  cost  on  plain  looms  being  over 
one-third  of  a  cent  per  yard  higher  than  that  on  automatic 
looms. 

Age  of  machinery.  Another  factor  which  determines  the 
efficiency  of  a  mill  is  the  age  of  machinery.  Table  147 
[omitted  here]  shows  the  age  of  the  spinning  spindles  and 
looms  in  the  mills  covered  by  the  investigation  of  the  Board. 

The  age  of  machinery  affects  the  cost  of  production  in  a 
number  of  ways: 

(1)  The  older  a  machine  gets  the  more  frequently  it  is 
subject  to  breakdowns,  thus  reducing  the  productive  capacity 
of  the  mill  during  the  time  the  machine  stands  idle,  and 
thereby  increasing  the  overhead  charges  per  unit  of  product. 

(2)  It  increases  the  repair  expense  of  the  mill. 

(3)  To  the  extent  that  new  machines  are  put  on  the  market 
capable  of  a  greater  output  within  a  given  period  of  time, 


210  COTTON-MILL  EFFICIENCY 

either  through  greater  speed  or  through  improvements  which 
make  it  possible  for  one  employee  to  attend  a  greater  number 
of  machine  units,  the  old  machine  tends  to  increase  the  rel- 
ative cost  of  production  of  the  mill,  as  compared  with  mills 
using  more  modern  machines. 

To  this  extent  a  knowledge  of  the  age  of  the  machinery 
in  a  mill  is  of  great  value  as  tending  to  explain  differences 
in  cost  of  production  for  the  same  products  in  different  mills, 
and  also  aiding  in  arriving  at  a  conclusion  as  to  the  up-to- 
dateness  of  the  industry  as  a  whole  in  so  far  as  it  has  been 
covered  by  the  investigation. 

In  this  connection  it  may  be  added  that  while  the  investiga- 
tion of  the  Board  covered  only  about  20  per  cent,  of  the  total 
number  of  cotton  spindles  and  looms  in  operation  in  the  coun- 
try, it  is  fairly  representative  of  the  conditions  in  the  industry 
as  a  whole.  .  .  . 

As  will  be  seen  from  table  147  [here  omitted]  over  39  per 
cent,  of  all  the  spindles  and  over  46  per  cent,  of  all  the  looms 
investigated  were  not  over  10  years  old,  and  78  per  cent,  of  all 
the  spindles  and  over  74  per  cent,  of  all  the  looms  were  not 
over  20  years  old.  Twelve  and  five-tenths  per  cent,  of  the 
spindles  and  17  per  cent,  of  the  looms  were  from  20  to  30 
years  old,  while  9.3  per  cent,  of  the  former  and  6.9  per  cent, 
of  the  latter  were  from  30  to  40  years  old.  Over  10,000 
spindles  and  532  looms,  constituting  0.2  and  0.4  per  cent, 
of  the  respective  totals  were  from  60  to  65  years  old. 

Proportion  of  domestic  to  foreign  machinery.  It  will 
be  seen  [from  table  148,  omitted  here]  that  by  far  the  greater 
part  of  all  kinds  of  machinery,  except  mule  spindles,  is  of 
domestic  make.  Thus,  of  the  looms,  at  least  99.7  per  cent, 
is  of  domestic  make,  and  only  0.3  per  cent,  foreign.  Of  the 
ring  spindles,  99.9  per  cent,  is  domestic  and  0.1  per  cent, 
foreign.  Of  the  roving  or  jack  spindles,  85.8  per  cent,  is 
domestic  and  14.2  per  cent,  foreign.  The  only  exception,  as 
stated,  was  in  the  case  of  mule  spindles  of  which  83.1  per 
cent,  is  foreign  and  16.9  per  cent,  of  domestic  make. 


COTTON-MILL  EFFICIENCY  211 

Loom  production,  [page  494].  The  table  [153,  here 
omitted]  shows  that  the  production  per  weaver  per  hour 
on  29  of  the  31  different  kinds  of  cloth  was  very  much  greater 
in  the  United  States  than  in  England,  reaching  in  some  in- 
stances to  five  times  as  much.  The  reason  for  this  is  shown  in 
the  column,  " Number  of  looms  attended  per  weaver." 

In  England  the  weavers  on  sample  number  14  of  the  cloths 
tended  two  looms,  on  sample  No.  89  three  looms,  and  on  the 
other  29  samples  four  looms  each. 

In  the  United  States  the  number  tended  on  most  of  the 
cloths  ranged  from  6  to  28  looms  per  weaver.  On  7  samples 
as  low  as  3  looms  per  weaver  were  operated  in  the  United 
States,  the  average  in  2  mills  being  5  looms  and  in  4  mills  6 
looms  each.  On  samples  30  and  31  the  average  number  of 
looms  tended  in  this  country  was  the  same  as  in  England. 

The  column  "Speed  of  looms  in  picks  per  minute "  shows 
that  on  22  samples  the  speed  of  the  English  looms  exceeded 
that  of  the  United  States  looms.  On  2  samples  it  was  the 
same  in  both  countries,  and  on  7  samples  it  was  less  in  Eng- 
land than  in  the  United  States. 

The  column  "Yards  produced  per  loom  per  hour"  shows 
that  owing  to  greater  speed  of  English  looms  on  22  samples  the 
English  production  per  loom  is  higher ;  on  5  samples  it  was 
the  same  as  in  this  country;  and  on  4  samples  it  was  less  in 
England. 

In  the  table  comparison  is  made  of  English  looms  with  the 
automatic  as  well  as  the  plain  looms  used  in  the  United  States. 
The  number  of  plain  looms  attended  by  one  weaver  in*  the 
United  States  greatly  exceeds  the  number  attended  in  Eng- 
land. 

As  the  automatic  looms  in  use  in  Lancashire  form  less  than 
1  per  cent,  of  the  total  looms  there,  they  are  not  included  in 
the  comparative  production  shown  in  this  table.  Their  use, 
however,  is  growing  in  England,  though  slowly.  The  report 
of  the  British  tariff  commission  shows  that  in  1905  there  were 
* '  only  about  1000  of  these  working  in  England, ' '  while  in  May, 


212  COTTON-MILL  EFFICIENCY 

1911,  there  were  5409  automatic  looms  in  use  in  Lancashire 
in  a  total  of  741,260  looms  of  all  kinds  in  use  there  at  that 
date.  It  is  estimated  that  there  are  at  the  date  of  this  re- 
port nearly  10,000  automatic  looms  in  Great  Britain,  as  against 
approximately  220,000  in  the  United  States. 

Factors  limiting  automatic  looms.  Several  reasons  are 
advanced  for  the  delay  in  the  more  general  adoption  of  the 
automatic  loom  in  England.  For  one  thing,  the  automatic 
loom  costs  about  two  and  a  half  times  the  ordinary  plain 
loom,  and  this  has  deterred  many  English  mills  already 
equipped  with  plain  looms  from  adopting  them.  Again, 
English  mills  do  not  run  such  a  large  number  of  looms  on  a 
single-standard  fabric  as  do  American  mills,  and  the  auto- 
matic loom  has  not  been  found  so  suitable  as  plain  looms 
for  the  varied  Lancashire  trade  in  dhoties  and  other  fancies. 
Furthermore,  the  automatic  loom  requires  stronger  and  better 
warp  yarn  than  the  plain  loom,  for  the  breakage  of  a  single 
warp  thread  stops  the  loom.  The  American  mills  use  strong 
ringspun  warp  yarns;  while  a  large  portion  of  the  English 
mills,  producing  mainly  for  the  poorer  classes  of  the  Orient 
and  other  regions,  have  to  size  heavily  to  make  goods  cheap 
enough,  and  they  ordinarily  use  a  much  lower  grade  of  yarn 
than  would  American  mills  for  fabrics  that  pass  under  the 
same  trade  name.  The  warp  yarns  used  in  the  bulk  of  Eng- 
lish cloths  are  mule  spun;  and  since  they  are  soft  twisted 
to  enable  them  to  take  up  a  larger  amount  of  sizing  and  to 
give  the  required  feel  to  the  cloth,  they  are  not  so  suited  to 
the  automatic  loom  as  are  the  stronger  American  yarns. 

An  additional  reason  for  the  limited  use  of  the  automatic 
looms  appears  to  be  the  objection  to  them  of  the  labor  unions, 
which  have  been  afraid  that  they  would  be  used  to  displace 
labor  and  to  throw  more  work  on  the  weaver  without  propor- 
tionately increasing  his  earnings. 

Men  and  women  are  employed  in  weaving  both  in  Eng- 
land and  in  the  United  States.  It  is  probable  that  upon  the 
whole  there  is  little  difference  between  the  amount  of  work 


COTTON-MILL  EFFICIENCY  213 

done  by  men  weavers  and  by  women  weavers.  The  produc- 
tion of  the  men  weavers  is,  if  anything,  slightly  greater.  As 
has  already  been  shown,  there  is  a  difference  as  between  Eng- 
land and  the  United  States  in  the  practice  of  supplying 
weavers  with  assistance.  In  England  a  weaver  has  assigned 
to  him  a  given  number  of  looms,  and  is  commonly  required 
to  do  all  the  "  laboring "  connected  with  these  looms.  In  the 
United  States  the  weavers  have,  as  a  general  rule,  no  helpers, 
but  the  work  of  oiling,  sweeping,  and  carrying  yarn  and  cloth 
is  done  by  operatives  known  as  "oilers,"  "sweepers,"  and 
"filling  carriers,"  etc.,  employed  by  the  mill.  In  a  number 
of  the  American  mills  for  which  information  was  secured  the 
wages  of  oilers  and  other  employees  mentioned  amounted  to 
slightly  over  7  per  cent,  of  the  wages  of  the  weavers.  This 
percentage  may  therefore  be  regarded  as  the  amount  of  as- 
sistance which  the  American  weavers  receive  in  their  work. 
As  the  English  weavers  usually  pay  their  own  help,  the  per- 
centage representing  the  assistance  received  by  American 
weavers  should  be  taken  into  consideration  when  comparing 
the  amount  of  work  done. 


THE  MINIMUM  RATE  POLICY 

[THE  following  extracts  have  been  made  with  the  assistance  of  the 
author,  D.  A.  McCabe,  assistant  professor  of  economics  in  Princeton 
University,  and  are  printed  with  the  publishers'  approval.  These 
selections  comprise  parts  of  the  Introduction,  pp.  10-16,  and  parts 
of  Chapter  II,  found  on  pp.  83-106  (rate  grouping  by  competency) 
and  on  pp.  114-119  (wages  and  efficiency),  from  The  Standard  Rate 
in  American  Trade  Unions,  Johns  Hopkins  University  Studies  in  His- 
torical and  Political  Science,  30th  series,  No.  2,  1912.] 

The  standard  rate  as  a  minimum  [page  10].  The  main- 
tenance of  standard  rates  has  always  been  a  leading  feature  of 
American  trade-union  wage  policies.  The  unions  have  from 
the  first  sought  to  attain  their  primary  purpose  of  advancing 
wages  by  substituting  collectively  established  rates  of  wages 
for  those  which  their  members  could  obtain  in  isolated  wage 
bargains.  Almost  universally  their  efforts  in  this  direction 
have  taken  the  form  of  the  establishment  and  enforcement 
of  standard  rates.  .  .  .  The  standard  rate  is  ordinarily  ex- 
pressed as  a  minimum  rate.  Members  are  allowed  to  receive 
more  than  the  standard  rate,  but  for  a  member  to  work  for 
less,  unless  specifically  exempted  by  the  union,  is  a  violation 
of  the  union  rule.  The  establishment  of  a  standard  rate  does 
not,  therefore,  necessarily  secure  to  the  unions  complete  par- 
ticipation in  the  settlement  of  the  wage  rate  to  be  paid  in 
each  individual  case.  Such  full  participation  would  require 
that  the  union  rate  should  be  the  actual  rate  paid  to  each 
workman.  Union  piece  prices  are  almost  always  the  rates 
actually  paid,  for  there  is  ordinarily  no  good  reason  why  the 
employers  should  pay  one  member  more  per  piece  than  an- 
other for  the  same  kind  of  work.  Standard  time  rates,  how- 
ever, are,  with  few  exceptions,  not  only  nominally  but  actually 

214 


THE  MINIMUM  RATE  POLICY  215 

minimum  rates,  leaving  it  necessary  for  individual  settle- 
ments to  determine  in  each  case  whether  and  to  what  extent 
the  rate  to  be  actually  paid  shall  exceed  the  standard. 

Piece  rates  as  contrasted  with  time  rates  are  therefore  intrin- 
sically better  adapted  to  collective  action.  Since  those  who  are 
working  by  the  piece  on  the  same  kinds  of  product  or  parts  of  a 
product  ordinarily  are  paid  at  the  same  rate,  they  all  have  a 
common  interest  in  the  rate.  But  there  is  no  such  advan- 
tageous rallying  point  in  the  matter  of  time  wages.  Indeed 
there  is  a  natural  tendency  in  time  wages  to  variation  on  ac- 
count of  differences  in  competency  among  the  workmen.  In 
the  case  of  the  piece  rate,  or  of  the  normal  work  day,  on 
the  contrary,  the  union  makes  a  uniform  demand,  which  is 
assumed  to  advance  the  interests  of  all  alike,  and  can  be 
easily  made  the  subject  of  union  bargaining  for  the  group  as 
a  whole. 

Difficulty  of  rating  time  workers.  Bargaining  for  time 
wages  thus  presents  an  inherent  difficulty.  It  is  not  reducible 
to  a  uniform  demand  which  is  to  affect  all  alike.  On  the  other 
hand  the  policy  of  establishing  a  distinct  time  rate  for  each 
individual  worker  has  not  commended  itself  to  the  unions. 
This  policy  would  give  the  union  full  control  of  actual 
wages,  if  it  could  be  enforced;  but  the  union  rate  would 
in  each  case  apply  to  an  individual  only.  There  would  be 
collective  action,  but  not  for  a  rate  with  collective  application. 
As  actually  in  vogue,  the  standard  time  rate  may  not  give 
complete  union  determination  of  actual  wages;  but  it  does 
make  possible  a  rate  of  collective  application.  It  has  the 
advantage  of  simplicity  as  a  means  of  determining  wages 
for  a  considerable  number  of  men  in  collective  bargaining  and 
as  an  obligation  to  be  enforced  by  the  union.  In  choosing 
to  enforce  minimum  time  rates  rather  than  actual  individual 
rates  the  unions  have  surrendered  a  possible  complete  partici- 
pation in  the  determination  of  actual  wages  in  favor  of  a  kind 
of  union  rate  which  makes  much  more  feasible  the  establish- 
ment by  union  bargaining,  or — in  the  absence  of  a  union 


216  THE  MINIMUM  RATE  POLICY 

agreement  with  the  employer — by  collective  enforcement,  of 
the  rates  adopted  by  the  union.  .  .  . 

Problems  in  adjusting  the  minimum  [page  15].  The 
questions  of  chief  interest  in  the  employment  of  the  standard 
time  rate  grow  out  of  the  fact  that,  as  workmen  are  found, 
there  are  variations  in  efficiency  in  practically  every  group  of 
workers.  If  the  union  is  to  secure  effective  participation  in 
wage  determination  the  minimum  rate  must  be  so  adjusted 
that  a  relatively  large  proportion  of  the  workmen  covered  by 
a  particular  rate  will  be  favorably  affected  in  a  perceptible 
way  by  its  existence.  The  basis  chosen  for  the  inclusion  of 
workers  within  a  given  rate  group  very  largely  determines 
the  difficulty  of  reaching  this  result.  If  the  groups  are  so 
divided  that  the  members  of  each  are  of  almost  equal  wage- 
earning  capacity  the  minimum  rate  will  stand  in  approxi- 
mately the  same  relation  to  the  wages  of  all  the  members  of 
the  group.  In  such  a  case  the  use  of  the  standard  rate  for 
time  wages  seems  to  reap  a  maximum  of  union  advantage. 
If,  however,  the  members  employed  in  a  given  trade  or  branch 
of  a  trade  vary  considerably  in  worth  to  the  employer,  unless 
they  are  grouped  according  to  competency  and  each  group 
rated  correspondingly,  any  particular  standard  rate  will  either 
be  so  low  as  to  be  of  little  appreciable  support  to  the  most 
efficient  men,  or  so  high  as  to  exclude  a  number  of  the  least 
efficient  from  employment  at  the  union  rate. 

There  is  obviously  an  inherent  difficulty  in  establishing 
standard  rates  for  workers  who  are  not  standardized.  Oc- 
casionally unions  have  sought  for  a  solution  in  the  direction 
of  standardizing  the  workers  by  dividing  them  into  groups 
according  to  competency.  But  the  usual  basis  of  grouping 
is  the  kind  of  work  done,  not  the  efficiency  with  which  it  is 
done.  An  appreciable  tendency  toward  standardization  of 
men  engaged  in  the  same  kind  of  work  or  subject  to  the 
same  minimum,  at  least  toward  the  elimination  of  those  below 
a  somewhat  variable  level  of  capacity,  is  fostered  in  many 
unions  by  the  requirements  as  to  competency  insisted  on  for 


THE  MINIMUM  RATE  POLICY  217 

admission  to  membership.  In  the  great  majority  of  cases, 
however,  the  same  rate  applies  to  workers  of  appreciably 
differing  capacities,  and  the  establishment  of  the  standard 
leaves  some  members  of  more  than  average  efficiency  under 
the  necessity  of  individual  contracting  to  secure  wages 
higher  than  their  less  efficient  fellow  members.  The  influ- 
ence of  the  various  phases  of  union  policy  connected  with 
the  maintenance  of  minimum  time  rates  on  the  opportunities 
of  the  speedier  or  more  highly  skilled  workmen  to  obtain 
more  than  the  union  rate,  and  the  extent  to  which  they 
actually  do  obtain  more,  are  among  the  most  significant  ques- 
tions connected  with  union  wage  policies — and  the  most  diffi- 
cult of  exact  answer.  .  .  . 

Group  rates  by  kinds  of  work  in  a  trade  [page  83].  The 
line  of  demarcation  between  groups  subject  to  different  mini- 
mum rates  has  nearly  always  to  do  with  the  kind  of  work  the 
members  are  performing,  not  with  the  degree  of  competency 
shown  in  doing  work  of  the  same  kind.  In  many  trades  there 
arc  two  or  more  separate  kinds  of  work  which  are  recognized 
as  constituting  distinct  branches  or  subdivisions  of  the  trade 
or  craft,  each  in  itself  the  special,  and  for  the  most  part  ex- 
clusive, occupation  of  those  who  follow  it.  Where  there  are 
such  occupational  groups  within  the  membership  of  a  union 
— and  in  most  time-working  trades  there  are  at  least  two, 
and  often  several — the  general  union  policy  is  to  establish 
different  minimum  rates  for  groups  recognized  as  requiring 
different  grades  of  skill.  .  ,  . 

The  differences  in  occupation  within  the  membership  of  a 
union  are  often  wider  than  those  within  what  may  be  consid- 
ered a  trade  or  craft.  Some  unions,  the  so-called  "industrial" 
unions,  include  workmen  of  several  trades  within  their  mem- 
bership. ...  In  such  unions  as  these,  the  question  of  rating 
naturally  resolves  itself  at  the  outset  into  a  separate  deter- 
mination for  each  of  the  distinct  trades. 

Many  unions  are  composed  of  the  members  of  trades 
which  have  been  much  subdivided  in  recent  years  in  conse- 


218  THE  MINIMUM  RATE  POLICY 

quenee  of  advances  in  productive  methods.  The  Garment 
Workers,  Ladies'  Garment  Workers,  Boot  and  Shoe  Work- 
ers, Bookbinders,  and  Laundry  Workers,  are  conspicuous 
examples  of  this  class.  In  each  of  these  trades  there  are 
subdivisions  which  require  no  common  apprenticeship,  and 
from  one  to  another  of  which  workers  do  not  ordinarily 
pass.  Each  of  these  subdivisions  is  virtually  a  distinct  trade 
or  craft  from  the  standpoint  of  wage  rating  and  is  recog- 
nized as  such  by  the  unions.  .  .  . 

[Page  86]  Finally,  there  are  unions  which  maintain  dis- 
tinct minimum  rates  for  groups  of  workers  divided  according 
to  the  stages  of  advancement  which  they  have  reached  in  the 
trade.  The  International  Printing  Pressmen's  Union  is  such 
a  union.  .  .  .  The  Lithographers  also  fix  a  series  of  rates 
of  wide  range  for  their  members  in  charge  of  presses,  accord- 
ing to  the  size  of  the  press.  The  Machine  Printers'  rates 
for  printing  wall  paper  vary  in  similar  fashion  with  the 
number  of  colors  printed. 

There  are  many  other  instances  of  differentiation  in  rates 
within  a  union  according  to  degree  of  proficiency.  .  .  .  The 
rates  of  the  Compressed  Air  Workers  vary  according  to  the 
pounds  of  pressure  under  which  the  work  is  done.  This  is 
partly  a  matter  of  physical  strength,  but  also  a  matter  of 
experience  in  more  difficult  work. 

There  are  also  unions  which  set  higher  rates  for  groups  of 
men  who  have  specialized  on  work  which  is  above  the  skill  of 
the  ordinary  journeyman.  [Various  examples]  ...  In  some 
trades,  too,  foremen  and  men  "in  charge  of  gangs''  are  given 
higher  minimum  rates.  In  nearly  all  of  these  unions  the 
higher-rated  men  are  in  the  same  unions  with  the  members 
following  the  common  branch  of  the  trade.  Where  men  are 
not  separately  rated,  although  engaged  regularly  on  work 
recognized  as  requiring  more  skill  than  is  expected  of  the 
average  journeyman,  it  is  usually  because  these  men  are  com- 
paratively few  in  number,  or  do  not  feel  the  need  of  a  higher 
union  rate  to  secure  higher  wages,  or  because  the  union  does 


THE  MINIMUM  RATE  POLICY  219 

not  wish  the  work  to  be  assigned  to  a  specialized  class  of 
workmen. 

Sometimes  a  distinction  is  made  in  the  minimum  rate  for 
other  reasons  than  differences  in  trade  skill.  The  Granite 
Cutters  have  a  higher  rate  for  outside  work  than  for  work 
done  under  shelter,  to  compensate  for  the  exposure  and  greater 
lack  of  regularity  in  the  former.  Men  working  on  surface 
machines  are  also  usually  given  higher  rates  in  this  union,  not 
because  the  work  requires  greater  than  average  skill  but  on 
account  of  the  exposure  to  the  fine  dust.  .  .  .  Sometimes  men 
in  the  building  trades,  particularly  bricklayers  and  carpenters, 
are  allowed  by  their  local  unions  to  take  special  yearly  jobs 
at  rates  that  amount  to  less  per  day  than  the  union  minimum. 
These  are  usually  positions  with  corporations  with  large  es- 
tablishments which  do  their  own  repair  work  and  undertake 
no  building  contracts.  These  positions  are  exempted  from 
the  regular  daily  rate  because  the  work  is  not  done  in  compe- 
tition with  contractors  in  the  trade  and  because  the  men  earn 
more  in  the  year  than  members  at  the  minimum. 

Rate  grouping  by  competency,  opposed  [page  94].  The 
suggestion  has  often  been  made  to  time-working  unions  that 
instead  of  setting  a  single  rate  for  all  men  engaged  in  the 
same  kind  of  work  they  should  divide  their  members  into 
classes  on  the  basis  of  competency  and  fix  a  separate  rate  for 
each  class.  Nearly  every  important  time-working  union  has 
at  some  time  or  other  faced  a  proposal  of  this  kind  emanating 
from  the  employers  or  from  its  own  members.  The  employers 
have  urged  that  such  a  plan  would  remove  the  chief  defect 
in  the  minimum  rate,  that  is,  the  necessity  which  the  em- 
ployer is  under  of  paying  the  less  competent  men  the  same 
rate  as  the  good,  average  man.  Within  the  unions  the  pro- 
posal has  been  advocated  on  the  ground  that  it  will  allow  the 
less  proficient  members  to  obtain  work  and  at  the  same  time 
make  it  possible  to  maintain  a  high  minimum  for  the  better 
men.  This  policy  in  rating  has  naturally  been  most  strongly 
urged  upon  those  unions  in  which  the  differences  in  ef- 


220  THE  MINIMUM  RATE  POLICY 

ficiency  among  members  doing  the  same  work  are  very  large, 
a  circumstance  which  throws  into  greater  relief  the  fact  that 
a  large  number  of  men  of  varying  competency  are  subject  to 
the  same  minimum  rate.  The  classification  of  men  on  the 
basis  of  differences  in  competency  has  not,  however,  com- 
mended itself  generally  to  the  unions.  Very  few  unions  now 
look  upon  this  method  of  rating  with  favor  or  are  willing  to 
adopt  it  except  as  a  temporary  expedient.  Many  of  the  im- 
portant time-working  unions  have  had  experience  with  the 
plan  and  nearly  all  of  these  have  fought  for  its  abolition,  in 
nearly  all  cases  with  success.  .  .  . 

[Page  97]  The  general  rejection  by  the  unions  of  the  sys- 
tem of  grading  members  for  wage  rating  proceeds  from  the  be- 
lief that  it  tends  to  reduce  wages  through  the  competition  of 
the  more  poorly  paid  with  the  better  paid  workmen.  It  has 
usually  been  found  extremely  difficult  to  assign  members  to 
their  grades  so  exactly  as  to  insure  that  some  men  shall  not 
be  given  a  lower  rate  by  the  union  than  the  general  run  of 
members  of  the  same  capacity  are  receiving  and  are  required 
to  demand.  It  is  difficult,  too,  to  insure  that  men  of  lower 
grades  shall  be  transferred  to  a  higher  grade  when  their 
competency  rises  above  that  of  their  grade.  The  unions  con- 
sider it  a  further  objection  that  the  maintenance  of  a  rate  or 
rates  below  the  point  at  which  a  single  minimum  would  be  set 
makes  for  the  retention  in  the  trade  of  a  class  of  inefficient  or 
partially  trained  workmen.  .  .  . 

Rate  grouping  in  practice.  Yet  at  least  two  unions  in  the 
building  trades — the  Lathers  and  the  Wood  Carvers — still  ac- 
cept it  as  an  unobjectionable  method  of  wage  regulation.  .  .  . 
Local  unions  in  other  trades  have  occasionally  found  it  good 
policy  to  divide  their  members  into  two  or  three  classes  ac- 
cording to  competency.  When  a  union  is  first  established  in 
a  locality  or  when  a  large  plant  is  unionized  the  local  union 
may  find  the  new  members  grouped  into  two  or  three  or  even 
more  fairly  distinct  wage  classes.  If  the  members  have  been 
working  under  the  piece  system  there  may  be  a  considerable 


THE  MINIMUM  RATE  POLICY  221 

divergence  in  wages,  particularly  if  the  work  is  not  highly 
skilled.  Under  these  circumstances  it  is  difficult  to  find  one 
rate  that  will  be  satisfactory  as  a  minimum.  The  adoption  of 
a  single  minimum  if  high  would  exclude  the  less  capable  men, 
and  probably  make  it  impossible  to  secure  a  wage  agreement 
with  the  employer;  a  single  low  minimum  would  not  be  of 
much  support  to  the  men  of  higher  earning  capacity.  Rather 
than  take  either  of  these  courses  local  unions  have  in  many 
cases  preferred  to  establish  two  or  three  rates  of  wages.  In 
such  cases,  however,  the  local  union  expects  to  eliminate  the 
lower  rate  as  soon  as  possible,  and  it  is  usually  urged  to  do 
this  by  the  national  union.  .  .  . 

[Page  103]  In  some  unions  there  are  systems  of  rating 
which  closely  resemble  grouping  according  to  competency. 
Several  unions  allow  young  men  just  out  of  apprenticeship  to 
work  for  three  or  six  months  or  a  year  at  specified  rates  lower 
than  the  regular  minimum.  Permission  to  work  at  a  lower 
rate  is  granted  to  young  journeymen  who  have  just  finished 
their  apprenticeship  more  frequently  by  the  metal-trades  and 
railroad-shop  unions  than  by  the  building-trades  unions.  .  .  . 

[Page  105]  Nearly  all  unions  permit  members  who  have  be- 
come unable  to  command  the  minimum  rate  because  of  old 
age  or  physical  infirmity  to  work  for  what  they  can  get. 
There  are  a  few  time-working  unions  which  have  no  rule  to 
this  effect,  because  the  nature  of  the  work  is  such  that  expe- 
rience offsets  the  loss  of  physical  vigor,  or  because  physical 
vigor  counts  for  so  much  in  the  work  that  old  men  are  not 
wanted  by  the  employers  even  at  lower  rates.  Some  local 
unions  which  have  both  piece-price  lists  and  time  rates,  as 
in  a  few  of  the  Granite  Cutters'  branches,  provide  that  old 
men  employed  by  the  hour  or  day  shall  be  paid  according  to 
what  their  work  averages  by  the  piece  bill.  Some  other  local 
unions  stipulate  that  the  wages  of  the  exempted  men  shall  be 
agreed  upon  by  a  union  committee  in  conference  with  the  em- 
ployer. In  very  few  local  unions  does  the  number  of  ex- 
empted men  exceed  five  per  cent,  of  the  membership,  and  the 


222  THE  MINIMUM  RATE  POLICY 

exemption  is  made  on  a  much  more  ascertainable  basis  than 
competency.  .  .  . 

Wages  and  efficiency  in  time  work  [Page  114].  Very 
little  seems  to  be  known  as  to  the  differences  in  efficiency 
among  men  engaged  in  the  same  kind  of  work.  It  is  safe  to 
assume,  however,  that  they  are  not  reflected  in  time-working 
trades  with  any  exactness  by  the  wages  paid,  even  where  there 
is  no  union  minimum.  When  the  union  confines  its  action 
in  wage  rating  to  the  establishment  of  a  single  minimum  rate 
for  members  engaged  in  the  same  kind  of  work,  it  is  ob- 
vious that  the  adjustment  of  individual  earnings  to  individual 
capacity  is  not  as  likely  to  be  secured  as  under  the  piece-rate 
system.  Even  where  the  union  does  not  discourage  large 
outputs,  the  time  wages  of  the  better  men  do  not  exceed  the 
minimum  in  the  same  proportion  that  the  men  show  efficiency 
above  the  average.  It  is  safe  to  state  that  generally  when  men 
whose  earning  capacity  is  above  that  of  the  average  journey- 
man are  left  dependent  upon  individual  bargaining  for  wages 
above  the  minimum,  they  do  not  receive  additional  wages  com- 
mensurate with  their  superior  capacity. 

Of  most  time-working  unions  it  can  be  said,  however,  that 
the  variations  in  efficiency  within  the  membership  are  not  as 
wide  as  among  men  in  the  same  trades  outside  the  union. 
The  mere  insistence  on  a  minimum  rate  which  is  intended  to 
be  almost  as  much,  if  not  as  much,  as  the  average  member 
can  successfully  demand,  necessarily  excludes  from  the  union 
men  much  below  the  average  of  competency.  Such  men  can- 
not obtain  regular  employment  at  the  union  rate,  and  it  is 
consequently  useless  for  them  to  retain  union  membership. 

Union  tests  of  competency.  But  time-working  unions  do 
not  rely  solely  upon  a  high  minimum  to  keep  their  member- 
ship clear  of  men  considerably  below  the  average  in  compe- 
tency. Practically  all  of  the  skilled  trades  require  that  can- 
didates for  membership  must  prove  their  competency  or  be 
vouched  for  as  competent  by  members  who  have  worked  with 
them.  Where  the  testimony  of  members  on  the  same  "job" 


THE  MINIMUM  RATE  POLICY  223 

is  accepted  as  sufficient  evidence  of  competency  the  test  is 
practically  reduced  to  ability  to  secure  employment  at  the 
minimum  rate.  In  a  number  of  unions,  however,  as,  for  in- 
stance, the  Plumbers,  the  Electrical  Workers,  the  Stereotypers 
and  Electrotypers,  and  the  Bricklayers,  the  candidate  must 
prove  his  competency  by  passing  a  serious  examination  set  by 
a  special  board  or  committee.  Finally,  many  time-working 
unions  attempt  to  insure  that  the  membership  shall  be  re- 
cruited from  competent  journeymen  by  recognizing  a  normal 
method  of  learning  the  trade  under  union  auspices.  The  ap- 
prenticeship regulations  of  the  unions  are  directed  in  large 
part  to  this  end,  as  are  the  provisions  made  by  a  number  of 
unions  for  advancement  from  the  status  of  helper  to  that  of 
journeyman  after  a  given  number  of  years  under  instruction 
in  the  former  capacity. 

Minimum  as  a  maximum.  The  maintenance  of  a  minimum 
rate  by  a  union  also  in  another  way  tends  to  make  wages  uni- 
form. The  fact  that  a  given  rate  is  the  "union"  rate,  and 
as  such  becomes  the  center  of  attention  and  the  subject  of 
negotiation  and  even  of  conflict — this  makes  it  the  presump- 
tive rate.  Moreover,  many  employers  who  are  brought  with 
much  reluctance  to  agree  to  observe  the  minimum  look  upon 
the  minimum  as  a  "lump"  rate  which  they  have  agreed  to 
pay  the  union  for  the  labor  of  its  members.  These  employers 
often  take  the  ground  that  they  should  not  be  expected  or  can 
not  afford  to  pay  the  better  men  more  than  the  minimum,  be- 
cause they  are  compelled  to  pay  the  union  rate  to  many  men 
who  are  not  worth  it.  The  provisions  in  agreements  noted 
above  for  equal  increases  for  all  the  men  are  evidences  of  this 
feeling.  The  union  officials  assert  that  some  employers'  as- 
sociations have  a  rule  against  paying  men  more  than  the  mini- 
mum. There  is,  of  course,  a  greater  likelihood  of  united 
action  against  the  payment  of  differential  wages  when  the 
minimum  is  established  by  agreement  of  the  union  and  the  em- 
ployers as  a  body. 

Competition  above  minimum.     The  same  forces  that  lead 


224  THE  MINIMUM  RATE  POLICY 

to  the  payment  of  wages  above  the  average  rate  where  there 
is  no  union  minimum,  however,  often  operate  to  cause  the 
payment  of  wages  above  the  union  minimum,  even  though 
their  effectiveness  is  reduced  by  the  union  regulations  noted 
above.  The  chief  of  these  forces  is,  of  course,  competition. 
Employers  are  often  compelled  to  comply  with  the  demands  of 
the  more  efficient  men  for  higher  wages  in  order  to  retain 
them.  There  are  many  employers,  too,  who  pay  the  better 
men  more  than  the  minimum,  as  a  matter  of  course,  as  com- 
pensation for  superior  service  and  as  an  inducement  to  the 
men  to  put  forth  their  best  efforts.1 

In  any  attempt  to  estimate  the  extent  to  which  men  re- 
ceive wages  above  the  minimum  on  account  of  superior  effi- 
ciency, it  is  important  to  bear  in  mind  that  the  minimum  in 
different  scales  may  stand  in  very  different  relation  to  the 
modal  or  predominant  wage.  The  proportion  of  men  re- 
ceiving more  than  the  union  minimum  in  a  trade  is  frequently 
large  because  the  competitive  wage  has  increased  since  the 
minimum  was  established.  Where  the  minimum  is  established 
by  an  agreement  it  is  customary  to  make  it  binding  for  a 
specified  period,  and  if  in  that  time  the  competitive  wage  for 
men  increases  considerably  the  employers  will  frequently  offer 
wages  above  the  minimum  to  men  of  no  more  than  average 
competency.  Sometimes  the  union  refrains  from  raising  the 
minimum  when  an  increased  demand  for  men  would  make  that 
possible.  In  1906  the  secretary  of  the  Bricklayers'  and  Ma- 
sons' Union  cautioned  the  local  unions  against  putting  up  the 
rate  when  the  demand  is  brisk  to  a  point  at  which  it  can  be 
permanently  maintained  only  by  throwing  some  members  out 

i  The  payment  of  a  wage  rate  above  the  minimum  is  not  the  sole  form 
of  differential  compensation.  Often  the  better  men  receive  the  same 
hourly  rate  but  are  given  more  regular  employment,  the  cleanest  and 
most  desirable  work,  and  even  overtime  payment  for  merely  nominal  work. 
Because  of  such  considerations  workmen  in  the  building  trades  will  often 
remain  with  an  employer  at  the  minimum  rate  when  other  employers  are 
offering  two  or  three  cents  an  hour  more. 


JTHE  MINIMUM  RATE  POLICY  225 

of  regular  employment.1  'A  few  branches  of  the  Granite  Cut- 
ters have  provisions  in  their  agreements  to  the  effect  that  if  an 
employer  advertises  for  men  at  more  than  the  minimum  rate 
he  shall  pay  the  higher  rate  to  all  in  his  employ. 

The  union  minimum  is  sometimes  fixed  for  other  reasons 
below  the  wage  rates  of  most  of  the  men  to  whom  it  applies. 
The  rate  may  be  kept  low  in  order  to  permit  men  to  secure 
employment  who  would  not  be  able  to  do  so  if  the  predomi- 
nant wage  were  taken  as  the  minimum.  This  policy  has  been 
followed  in  some  cities  by  the  local  unions  of  masons  in  the 
Bricklayers'  and  Masons'  Union.  Local  unions  of  the  Ma- 
chinists, too,  occasionally  set  a  low  minimum  rate  rather  than 
a  starting  rate  and  a  higher  regular  minimum.  Again,  a 
group  of  workers  who  usually  command  a  higher  rate  of  pay 
than  other  journeymen  in  the  trade  may  not  be  given  a 
separate  union  rate.  An  instance  in  point  is  that  of  cabinet 
makers  or  " bench  men7'  in  the  Carpenter's  Union  who  are 
given  the  same  minimum  rate  as  machine  wood  workers. 

Proportion  of  workers  getting  more  than  minimum  wage. 
The  extent  to  which  differential  wages  are  paid  above  the 
union  minimum,  when  that  rate  is  the  rate  actually  paid  to 
the  men  whose  efficiency  is  about  the  average,  varies  widely 
in  different  trades.  There  are  trades  in  which  differential 
payments  of  this  character  are  very  exceptional.  Unskilled 
laborers,  such  as  the  ordinary  building  laborers,  are  com- 
monly paid  one  flat  rate  whether  organized  or  not.  The  same 
is  largely  true  of  men  paid  by  the  day  or  hour  in  street  rail- 
way or  railroad  service.  In  union  agreements  with  the  street 
railway  companies,  the  minimum  rate  is  usually  the  same  for 
all  after  the  first  year  of  service,  and  the  companies  almost 
without  exception  make  this  the  actual  rate.  Men  in  the  rail- 
road yard  service  are  paid  by  the  hour  and  yard  engineers, 

i  Annual  Reports,  1906,  p.  299.     Members  may  not  strike  for  more 
than  the  minimum  rate.     But  men  may  strike  to  enforce  payment  of 
more  than  the  minimum  from  a  contractor  who  has  agreed  to  pay  more 
and  later  refuses  (Ibid.,  p.  28). 
15 


226  THE  MINIMUM  RATE  POLICY 

firemen,  conductors,  and  trainmen  practically  all  receive  the 
minimum  rates  set  for  their  respective  classes.  Men  em- 
ployed in  railroad  shops  rarely  receive  more  than  the  mini- 
mum rates,  although  in  these  same  trades  in  the  contract 
shops  a  considerable  part  of  the  men  receive  wages  above  the 
minimum.  Standardization  of  workmen  and  of  work  and  the 
practice  of  dealing  with  large  bodies  of  men  as  classes  tend 
to  standardize  the  wages  paid  in  the  railway  service  more  than 
in  trades  calling  for  similar  grades  of  skill  in  other  in- 
dustries.1 

In  the  building  trades,  the  higher  rates  in  the  large  cities 
tend  to  attract  the  better  men  and  keep  out  the  poorer  and 
this  tends  to  reduce  the  variations  in  competency  from  the 
average.  The  employment  of  men  in  larger  numbers  and 
the  more  frequent  changing  of  the  men,  together  with  the 
existence  of  employers7  associations  for  dealing  with  the 
unions,  also  make  for  greater  uniformity  in  actual  payment 
in  the  large  cities  than  in  the  smaller  places.2  Wages  among 
the  Stone  Cutters  and  the  Granite  Cutters  seem  to  conform 
more  closely  to  the  minimum  than  in  the  other  building  trades. 
The  reason  for  this  in  the  case  of  the  Stone  Cutters  has  been 
indicated. 

In  the  printing  trades,  particularly  among  the  compositors 
and  the  stereotypers  and  electrotypers,3  and  in  the  metal 

1  The  tendency  toward  uniform  rates  for  men  engaged  in  the  same  kind 
of  work  is  stronger  in  large  establishments  than  in  small  establishments 
for  the  same  reasons. 

2  It  is  difficult  to  get  anything  more  than  estimates  of  the  percentage 
of  men  receiving  wages  above  the  minimum.     The  secretary  of  the  Com- 
position Roofers  estimates  that  not  more  than  two  per  cent,  of  the  mem- 
bers in  New  York  City  receive  more  than  the  minimum.     An  official  of 
the  Steam  Fitters  estimates  that  for  his  union  in  New  York  City  the! 
proportion  is  not  less  than  five  nor  more  than  ten  per  cent. 

s  An  officer  of  the  local  union  of  the  Stereotypers'  and  Electrotypers' 
Union  estimates  that  about  50  out  of  650  members  in  New  York  City 
receive  more  than  the  minimum.  The  electrotype  finishers,  but  not  the 
electrotype  founders,  are  included  in  the  organization  there.  In  Boston 
where  both  branches  are  included,  the  secretary  estimates  that  forty  pec 
cent,  receive  more  than  the  minimum. 


THE  MINIMUM  RATE  POLICY  227 

trades  the  proportion  of  workmen  receiving  more  than  the 
minimum  is  larger  than  in  the  building  trades.  The  diversi- 
fied nature  of  the  work  included  within  the  trade  and  the 
consequent  differences  in  experience  and  skill  among  the  mem- 
bership, combined  with  the  absence  of  graded  union  rates,  ac- 
count largely  for  the  prevalence  of  differential  payments 
among  the  Holders  and  Machinists.1 

i  A  national  official  of  the  Holders'  Union  estimates  that  at  least  thirty 
per  cent,  of  the  members  receive  more  than  the  minimum.  This  is  the 
highest  estimate  obtained  for  any  union.  In  the  Iron  Holders'  Journal 
for  September,  1900  (p.  532),  a  correspondent  declares  that  there  is  not 
a  foundry  in  the  country  in  which  some  men  do  not  get  more  than  the 
minimum.  In  the  number  for  March,  1900  (p.  147) ,  it  was  reported  that 
in  Milwaukee  where  the  minimum  was  $2.75  "some  of  our  best  men  get 
$3.50." 


PRICES  AND  FARM  MANAGEMENT 

[THESE  illustrations  of  the  relations  in  agriculture  between  costs  and 
profitable  cultivation  are  taken  from  pp.  6-9  of  Bulletin  209  of  the 
University  of  Wisconsin  Agricultural  Experiment  Station  (May,  1911), 
by  H.  C.  Taylor,  Professor  of  Agricultural  Economics.] 

Prices  and  crop  selection.  It  is  essential  to  good  farm 
management  that  the  farmer  understand  the  trend  of  prices 
in  order  that  he  may  plant  and  breed  to  suit  the  future  market 
on  which  his  products  must  be  sold. 

Within  certain  regions  the  question  whether  one  should  sow 
oats,  barley,  or  spring  wheat  is  determined  by  the  relative 
prices  for  which  these  products  can  be  sold.  In  given  regions 
the  choice  between  corn,  potatoes,  and  sugar  beets  (crops 
which  require  cultivation  at  the  same  time  of  the  year)  should 
be  determined  on  the  basis  of  the  profit  the  farmer  can  make 
from  each  of  these  crops  and  this  depends  upon  the  prices 
for  which  they  can  be  sold. 

Costs  and  prices.  It  has  been  common  to  hear  the  state- 
ment ' '  The  price  should  be  high  enough  to  pay  the  cost  of  pro- 
duction and  a  reasonable  profit. ' '  This  phrase  when  properly 
understood  is  full  of  significance.  It  is  a  misinterpretation 
however,  to  assume  this  phrase  to  mean  that  every  pro- 
ducer of  a  given  product  has  a  right  to  expect  and  to  de- 
mand a  price  which  will  cover  his  costs  and  give  him  what  he 
considers  a  reasonable  profit.  Costs  in  a  given  locality  vary 
greatly  because  of  differences  in  the  men  in  charge  of  the 
farms.  Costs  vary  greatly  in  different  regions  owing  to  dif- 
ferences in  soil  and  climate,  the  character  and  abundance  of 
the  labor  supply  and  the  location  with  respect  to  the  market. 

Costs  and  the  efficiency  of  the  farmer.  It  usually  happens 
that  there  is  an  inefficient  producer  here  and  there  who  is 

228 


PRICES  AND  FARM  MANAGEMENT  229 

producing  at  a  cost  greater  than  the  price  at  which  other 
farmers  find  it  profitable  to  produce  enough  to  supply  the 
demand.  Suppose  the  price  were  artificially  pushed  up  to  a 
point  where  the  inefficient  farmer  can  make  a  profit.  This 
would  make  the  enterprise  exceedingly  profitable  to  the  effi- 
cient farmers,  and  would  tend  to  increase  their  production,  the 
greater  supply  would  force  prices  down  and  the  second  state 
of  the  inefficient  farmer  would  be  worse  than  the  first.  All 
who  are  producing  at  a  loss  should  change  to  some  other  line 
of  production  for  which  their  qualifications  count  for  more. 
It  often  happens,  for  example,  that  a  low  grade  dairyman  is  a 
high  grade  tobacco  producer,  that  a  low  grade  grain  farmer 
can  make  money  in  the  grazing  of  cattle,  etc. 

Costs  vary  with  natural  conditions.  Low  efficiency  of  the 
farmer  in  the  given  line  of  production  is  only  one  of  the 
causes  which  may  result  in  costs  which  exceed  prices.  As  has 
been  stated,  costs  are  greater  in  some  regions  than  in  others. 
The  wheat  regions  of  the  world  are  numerous  and  widely  scat- 
tered. The  cost,  per  bushel,  of  producing  wheat  and  putting 
it  upon  the  world's  central  wheat  market,  Liverpool,  varies 
greatly.  During  periods  when  the  supply  of  wheat  is  increas- 
ing slowly  and  the  demand  for  wheat  is  increasing  at  a  slightly 
more  rapid  rate  the  price  of  wheat  will  tend  to  remain  high 
enough  to  retain  in  the  wheat  industry  the  region  where  the 
costs  are  greatest.  When,  however,  as  a  result  of  a  new  dis- 
covery or  the  extension  of  means  of  transportation  a  new  and 
fertile  wheat  region  enters  into  competition  with  the  old  re- 
gions it  may  happen  that  the  supply  of  wheat  will  increase 
more  rapidly  than  the  population  and  to  induce  the  people  to 
consume  more  wheat  per  capita  the  price  must  be  lowered. 
As  a  result  of  the  fall  in  the  wheat  price  some  of  the  old  wheat 
regions  will  find  their  costs  greater  than  the  prices  they  can 
get. 

Changes  from  wheat  growing  to  dairying.  This  condition 
was  brought  about  in  the  wheat  industry  when  the  fertile 
wheat  regions  of  Kansas,  Minnesota,  and  the  Dakotas  were 


230  PRICES  AND  FARM  MANAGEMENT 

made  accessible,  and  poured  their  abundant  supplies  of  grain 
upon  the  markets  of  Europe.  The  farmers  of  the  east  of  Eng- 
land found  wheat  growing  a  losing  enterprise.  Had  they 
understood  the  cause  of  the  fall  in  wheat  prices  they  would 
have  known  that  the  one  thing  to  do  was  to  drop  wheat  grow- 
ing and  take  up  some  other  line  where  foreign  competition  was 
not  so  keen.  After  a  long  time  this  came  about,  the  wheat 
lands  were  converted  into  meadows  and  pastures  and  the 
dairy  industry  pays  well  for  the  efforts  expended.  Unfor- 
tunately many  farmers  held  to  wheat  production  long  after  it 
had  ceased  to  yield  a  profit.  In  some  cases  this  resulted  in 
bankruptcy  which  alertness  to  the  price  situation  might  have 
avoided. 

We  are  not  without  illustrations  of  this  principle  in  this 
country.  The  falling  wheat  price  due  to  the  rapid  growth 
of  the  wheat  industry  in  the  northwest  was  an  important  fac- 
tor in  driving  Wisconsin  farmers  from  a  system  of  grain 
farming  with  wheat  as  the  money  crop  into  the  livestock  in- 
dustry with  dairy  products  as  the  chief  sources  of  income. 

The  westward  movement  of  the  wheat  industry  in  the  north 
was  paralleled  by  a  westward  expansion  of  cotton  production 
in  the  south.  From  the  old  centers  in  Georgia  and  the  Caro- 
linas  the  cotton  industry  extended  into  the  fertile  "  Black 
Prairie "  of  Alabama,  sprang  up  in  the  rich  alluvial  of  the 
Mississippi  and  confluent  rivers,  and  in  the  Black  Prairie  of 
Texas.  There  was  a  rapid  increase  in  the  quantity  of  cotton 
produced.  The  increased  supply  was  produced  at  a  lower  cost 
than  was  possible  in  the  old  regions.  The  obvious  result  was 
falling  prices  and  an  unprofitable  industry  in  the  old  cotton 
regions. 

Burley  tobacco  produced  at  lower  costs.  Another  illus- 
tration, which  is  of  particular  interest  to-day,  may  be  drawn 
from  the  Burley  tobacco  situation  in  Kentucky.  Burley  to- 
bacco was  first  grown  in  Kentucky  in  the  northern  part  of 
the  blue-grass  region.  This  is  a  rough  country  where  the  soil 
soon  lost  much  of  its  fertility.  The  industry  gradually  spread 


PRICES  AND  FARM  MANAGEMENT  231 

southward  into  the  counties  of  Scott,  Bourbon,  Franklin, 
Woodford,  Fayette  and  Jessamine.  These  counties  contain 
the  blue  limestone  region  known  as  the  heart  of  the  blue  grass 
country.  This  is  a  region  of  unusual  natural  fertility.  A 
large  proportion  of  this  land  had  remained  in  blue-grass 
pastures  from  the  first  settlement  of  the  country.  As  the  to- 
bacco industry  commenced  to  encroach  upon  this  fertile  region 
the  farmers  found  it  exceedingly  profitable  to  plow  up  the  old 
pastures  and  plant  them  in  tobacco.  Under  these  conditions 
the  supply  of  tobacco  was  increased  enormously.  Prices  fell, 
but  the  farmers  in  the  new  regions  of  production  were  making 
large  profits  at  prices  which  meant  starvation  to  the  growers 
of  the  old  Burley  tobacco  centers. 

The  blame  for  the  falling  prices  was  laid  at  the  door  of  the 
tobacco  trust,  and  it  is  doubtless  true  that  the  trust  made  the 
situation  worse,  but  the  condition  which  made  it  possible  to 
increase  the  supply  at  falling  costs  in  the  new  region  of  pro- 
duction was  the  cause  of  the  depressed  condition  of  the  grow- 
ers in  the  old  regions  of  Burley  tobacco  production.  The 
remedy  is  for  the  men  who  are  producing  tobacco  at  a  loss  to 
change  to  some  other  line  of  production  or  else  move  to  central 
Kentucky,  where  the  fertility  of  the  old  pasture  lands  may 
enable  them  to  make  a  profit. 

Prices  and  intensity  of  culture.  The  choice  of  crops  and 
of  livestock  is  not  the  only  point  where  prices  are  controlling 
factors  in  the  management  of  a  farm.  There  is  a  close  rela- 
tion between  the  price  of  products  and  the  degree  of  intensity 
of  culture  which  will  prove  most  profitable.  High  prices 
for  products  usually  results  in  high  land  values.  High  land 
values  make  it  profitable  to  use  land  more  sparingly.  For  ex- 
ample fewer  acres  should  be  used  for  a  herd  of  a  given  number 
of  cows  or,  what  is  the  same  thing,  more  cows  must  be  kept  on 
a  given  area  than  formerly,  if  the  farmer  is  to  secure  maxi- 
mum profits  from  high-priced  land.  This  means  more  inten- 
sive culture. 

These  illustrations  should  be  sufficient  to  show  that  the 


232  PRICES  AND  FARM  MANAGEMENT 

farmer's  interest  in  prices  begins  long  before  his  product  is 
ready  for  the  market,  and  that  he  should  study  prices  as  a 
farm  operator  as  well  as  a  seller  of  farm  products  if  he  would 
make  his  farm  yield  maximum  profits.  . 


SOME  FINDINGS  ON  COTTON  MANUFACTURES 

[THE  "Tariff  Board"  report  on  Schedule  1  of  the  tariff  of  1909  (Cotton 
Manufactures),  was  transmitted  by  President  Taft  to  Congress,  March 
26,  1912.  In  its  published  form  it  is  a  document  of  841  pages,  in 
two  volumes  (House  Document  No.  643,  62d  Congress,  2d  session). 
The  Board's  letter  of  submittal  contains,  in  brief  summary,  the  findings 
of  the  investigation  as  to  relative  costs  of  production  and  prices, 
with  reference  to  the  existing  rates  of  duty.  We  omit  the  intro- 
ductory survey  of  the  scope  of  the  investigation  but  give  the  greater 
part  of  the  letter  of  submittal  (pp.  8-17  of  the  report).] 

Cost  of  equipment.  The  method  of  determining  costs 
adopted  by  the  Board  does  not  include  the  item  of  interest, 
so  that  the  cost  figures  as  given  show  nothing  regarding  the 
original  investment  necessary  to  carry  on  the  process  of  manu- 
facture except  the  item  of  depreciation.  This  item  is  slight 
so  far  as  cost  per  yard  of  cloth  is  concerned.  Obviously,  how- 
ever, the  relative  advantage  or  disadvantage  of  the  foreign 
and  domestic  manufacturer  in  competition  is  affected  by  the 
amount  of  original  capital  on  which  interest  must  be  earned. 
Consequently  figures  are  presented  showing  the  relative  costs 
of  completing  and  equipping  a  spinning  plant  and  a  weaving 
plant  in  England  and  this  country,  designed  to  carry  on  the 
same  line  of  production.  From  these  figures  it  appears  that 
the  cost  of  erecting  a  building  is  about  40  per  cent,  greater  in 
this  country  than  in  England,  the  cost  of  equipment 
for  a  spinning  mill  about  70  per  cent,  higher,  and 
the  cost  of  equipment  for  a  weaving  plant  (with  plain 
looms  in  both  countries)  about  50  per  cent,  higher.  These 
figures  are  for  the  equipment  considered  adequate  for 
a  given  production  in  the  two  countries.  It  varies  somewhat 
according  to  different  methods  prevailing  in  the  two  countries, 

233 


234        SOME  FINDINGS  ON  COTTON  MANUFACTURES 

and  the  figures  do  not  necessarily  establish  the  relative  prices 
of  identical  machines  here  and  abroad.  Where  a  mill  is 
equipped  with  automatic  looms  the  cost  of  the  looms  is  at  least 
two  and  a  half  times  the  cost  for  a  mill  equipped  with  plain 
looms. 

A  very  small  part  of  the  cotton  machinery  used  in  this 
country  is  imported,  a  marked  contrast  to  the  case  of  worsted 
machinery.  With  the  exception  of  spinning  mules,  more  than 
90  per  cent,  of  the  machinery  is  of  domestic  manufacture. 
Practically  all  looms  and  all  ring  spindles  are  of  domestic 
make.  Of  cards  and  jack  spindles  about  15  per  cent,  are  of 
foreign  make.  Mule  spinning  in  this  country  involves  only 
about  20  per  cent,  of  the  total  number  of  spindles,  and  of  the 
mules  in  use  in  the  mills  investigated  83  per  cent,  were  im- 
ported. 

Cost  of  yarns.  In  comparing  the  cost  of  making  yarns  in 
England  and  the  United  States  it  has  seemed  essential,  in 
view  of  the  fact  that  80  per  cent,  of  English  spindles  are  on 
mules  and  80  per  cent,  of  American  spindles  on  ring  frames, 
to  compare  the  cost  of  mule  spinning  in  England  with  the 
cost  of  ring  spinning  in  this  country.  As  a  rule,  mule  spin- 
ning is  a  more  expensive  process,  and  the  production  from 
mule  spinning  is  of  somewhat  finer  quality,  even  with  yarns 
of  the  same  nominal  count.  These  facts  should  be  kept  in 
mind ;  but  it  is  evident  that  the  really  significant  comparison 
is  that  between  the  actual  results  obtained  under  the  pre- 
vailing methods  of  each  country. 

In  the  cost  of  raw  material  there  is  practically  no  advan- 
tage possessed  by  either  country.  Any  general  difference  in 
the  price  between  England  and  the  United  States  is  less  than 
occurs  from  mill  to  mill  or  month  to  month  in  either  country. 

The  actual  book  figures  for  English  mills  and  American 
mills  show  that  in  comparing  the  most  efficient  mill  for  which 
we  have  figures  in  England  with  the  most  efficient  mill  for 
which  we  have  figures  in  this  country — and  these  mills  are 


SOME  FINDINGS  ON  COTTON  MANUFACTURES         235 

typical  in  both  cases — the  per  cent,  of  the  total  English  labor 
cost  to  the  total  American  labor  cost  per  pound  of  yarn  varies 
from  78  to  95  per  cent.  Comparing  all  of  the  yarns  selected, 
the  English  labor  cost  is  found  on  the  average  to  be  practically 
seven-eighths  of  the  American  in  the  case  of  these  two  mills. 

In  the  matter  of  general  expense  the  difference  between  the 
two  countries  is  decidedly  greater,  thereby  increasing  the  dif- 
ference in  the  total  conversion  cost  of  yarn.  Again,  by  com- 
paring the  two  most  efficient  mills,  as  referred  to  above,  it  is 
found  that  the  total  conversion  cost  of  yarn  in  England  varied 
from  65  to  79  per  cent,  of  the  American  conversion  cost.  The 
average  on  all  counts  taken  shows  the  English  conversion  cost 
to  be  about  73  per  cent,  of  the  American. 

It  should  be  noted  that  these  comparisons  are  based  upon 
taking  that  mill  in  each  country  which  showed  in  general  the 
lowest  cost  on  the  whole  range  of  yarns.  On  certain  particular 
counts  a  lower  cost  was  shown  in  other  mills,  so  that  the  figures 
may  be  taken  as  typical  for  mills  of  high  efficiency.  They 
cover  warp  and  filling  yarns  not  higher  than  50  's  for  warp  and 
70 's  for  filling. 

Taking  all  the  mills  covered  by  the  investigation  in  each 
country,  there  were  wider  variations  in  the  American  costs 
secured  than  in  the  English  costs,  due  partly  to  the  fact  that 
the  English  mills  were  all  in  the  Lancashire  district,  where 
wages  and  other  •  conditions  are  well  standardized,  while  the 
American  costs  were  taken  from  mills  covering  a  much  wider 
area,  with  much  greater  differences  in  labor  and  other  con- 
ditions. Another  reason  for  the  wider  variations  in  American 
costs  is  that  the  English  mills  for  which  figures  were  secured 
are  all  of  a  modern  and  efficient  type,  while  some  of  the  Amer- 
ican mills  included  were  old  and  of  low  efficiency. 

In  the  case  of  most  yarns  for  which  figures  are  given  for  the 
United  States  the  highest  conversion  cost  is  50  per  cent,  higher 
than  the  lowest  conversion  cost.  In  a  few  cases  it  is  nearly 
double.  Consequently  the  difference  in  conversion  cost  would 


236         SOME  FINDINGS  ON  COTTON  MANUFACTURES 

appear  much  greater  in  a  comparison  drawn  between  mills  of 
lowest  cost  in  England  and  mills  of  highest  cost  in  the  United 
States. 

In  this  connection  care  should  be  taken  not  to  confuse  con- 
version cost  with  the  value  of  the  finished  yarn.  In  saying 
that  the  cost  of  manufacturing  yarn  in  an  English  mill  is  72 
per  cent,  of  the  cost  in  an  American  mill,  it  is  not  meant  that 
the  total  cost  of  English  yarn,  including  the  value  of  the  cot- 
ton in  it,  is  72  per  cent,  of  the  total  cost  of  the  American 
yarn.  As  a  matter  of  fact,  the  difference  in  conversion  cost 
between  the  two  countries  varies  from  3.8  per  cent,  to  11.9  per 
cent,  of  the  total  cost  of  production  in  England,  including 
raw  material. 

It  should  also  be  noted  that  these  relative  costs  do  not  in- 
clude yarns  of  the  highest  counts  or  other  yarns  used  largely 
for  special  purposes,  since  the  Board  was  not  able  to  secure 
sufficiently  detailed  figures  on  the  higher  counts  abroad. 
They  do  include,  however,  the  great  mass  commonly  manu- 
factured in  the  United  States.  It  is  entirely  possible  that  a 
comparison  of  costs  on  these  special  counts  or  qualities  would 
show  a  different  ratio  between  the  two  countries  than  is  here 
presented. 

Duties  on  yarn.  ...  A  comparison  of  the  cost  of  produc- 
tion in  the  two  countries  shows  that  in  the  case  of  the  ordinary 
warp  and  filling  yarns  the  present  duty  is  regularly  in  excess 
of  the  difference  in  cost  of  conversion.  If  the  relative  costs 
only  of  the  two  mills  having  the  lowest  cost  of  production  are 
considered,  it  appears  that  the  present  duty  on  the  types  of 
warps  and  filling  described,  ranging  from  30  's  to  80 's,  is  in  all 
cases  more  than  twice  the  difference  in  the  total  conversion 
cost,  and  in  some  cases  four  or  five  times  the  difference.  The 
labor  costs  on  these  yarns  is  from  50  per  cent,  to  60  per  cent, 
of  the  total  conversion  cost. 

These  figures,  as  stated,  are  based  on  the  difference  in  con- 
version cost  between  the  two  mills  of  lowest  cost.  Making, 
however,  a  similar  comparison  between  the  lowest  cost  in  Eng- 


SOME  FINDINGS  ON  COTTON  MANUFACTURES         237: 

land  and  the  highest  cost  in  the  United  States,  in  practically 
all  cases  the  duty  is  greater  than  the  difference  in  the  con- 
version cost.  .  .  . 

A  somewhat  different  situation  appears  in  the  case  of  yarns 
of  this  character  which  are  of  higher  counts — on  two-ply  yarns 
and  in  the  case  of  bleached,  mercerized,  and  dyed  yarns. 
For  such  yarns  the  ratio  of  the  duty  to  the  American  con- 
version cost  is  decidedly  less,  ranging  from  30  to  45  per  cent. 
A  duty  which  is  30  per  cent,  of  the  American  conversion  cost 
would  offset  the  difference  in  cost  when  the  English  conver- 
sion cost  is  70  per  cent,  of  the  American.  .  .  . 

Cost  of  weaving.  In  the  matter  of  turning  yarn  into 
woven  fabrics  the  Board  was  unable  to  secure  such  detailed 
foreign-cost  figures  as  in  the  case  of  spinning,  and  the  relative 
cost  of  this  process  of  manufacture  here  and  abroad  cannot 
be  stated  in  the  same  way.  For  tariff  purposes,  however, 
valuable  conclusions  may  be  drawn  from  a  comparison  of 
relative  prices  under  competitive  conditions  in  this  and  other 
countries  and  from  a  comparison  of  duties  with  domestic  pro- 
duction costs.  These  are  considered  below. 

It  is  necessary,  however,  to  recognize  an  important  dif- 
ference in  the  methods  employed  in  the  United  States  and 
England  in  this  branch  of  the  industry.  There  seems  to  be 
no  wide  difference  between  the  two  countries  in  the  amount  of 
machinery  tended  or  in  the  output  per  operative  in  the  spin- 
ning of  yarn.  In  the  case  of  weaving  the  situation  is  quite 
different.  English  looms  run  somewhat  faster  than  the  looms 
in  this  country,  but  the  number  of  looms  tended  per  weaver 
is  usually  much  less  than  here.  This  is  in  marked  contrast  to 
the  woolen  industry,  where  the  number  of  looms  tended  is 
about  the  same  in  the  two  countries.  In  the  case  of  plain  looms 
(not  automatic)  the  English  weaver  seldom  tends  more  than 
4  looms,  while  in  this  country  a  weaver  rarely  tends  less  than 
6,  and  more  frequently  8,  or  even  12,  if  equipped  with  "warp- 
stop  motions. "  Furthermore,  English  manufacturers  make 
little  use  of  automatic  looms.  .  .  Where  automatic  looms  can 


238         SOME  FINDINGS  ON  COTTON  MANUFACTURES 

be  used  a  single  weaver  commonly  tends  20  looms,  and  some- 
times as  many  as  28.  The  result  is  that  whereas  the  output 
per  spinner  per  hour  in  England  is  probably  as  great  or 
greater  than  in  this  country,  the  output  per  weaver  per  hour 
is,  upon  a  large  class  of  plain  goods,  less,  and  in  the  case 
where  automatic  looms  are  used  in  this  country  and  plain 
looms  in  England  it  is  very  much  less. 

The  foregoing  statements  apply  to  a  comparison  of  plain 
looms  in  the  two  countries  or  of  plain  looms  in  England  with 
automatic  looms  here.  In  the  case  of  other  methods  of  weav- 
ing such  as  dobby,  Jaequard,  box  dobby,  box  Jacquard,  lappet, 
etc.,  the  difference  in  output  is  by  no  means  so  great.  In  the 
case  of  dobby  looms  (without  automatic  attachment)  on  some 
classes  of  fabric,  the  American  weaver  will  tend  8  or  more 
looms  as  against  4  in  England ;  but  with  the  more  complicated 
weaves  the  ratio  seems  to  be  nearer  that  of  6  to  4,  and,  in  the 
case  of  certain  fancy  fabrics,  where  the  number  of  looms 
tended  is  necessarily  4  or  less,  the  output  per  weaver  is  about 
the  same  in  both  countries. 

As  is  well  known,  wages  or  earnings  are  not  necessarily  an 
index  of  the  labor  cost  of  any  particular  process  of  manufac- 
ture. The  labor  cost  per  yard  depends  on  the  relation  between 
wages  and  output.  An  extreme  illustration  can  be  shown  by 
figures  secured  by  the  Board  in  Japan.  It  is  true  that  the 
wages  of  spinners  and  weavers  per  day  in  that  country  are 
very  low,  but  the  number  of  operatives  employed  to  secure  a 
given  output  is  much  greater  than  in  this  country.  In 
the  case  of  spinning,  the  lower  wages  paid  are  not  offset  by 
the  larger  number  of  persons  employed,  and  consequently  the 
amount  paid  to  spinners  per  pound  of  yarn  is  materially  less 
than  in  this  country.  On  the  other  hand,  Japanese  weavers 
tend  only  one  or  two  looms,  and  the  lower  output  per  weaver 
under  existing  conditions  makes  the  amount  paid  the 
weaver  per  yard  of  cloth  about  80  per  cent,  of  the  amount  paid 
in  this  country  where  plain  looms  are  used  in  this  country; 
while  compared  with  the  use  of  automatic  looms,  the  amount 


SOME  FINDINGS  ON  COTTON  MANUFACTURES         239 

paid  the  weaver  per  yard  of  cloth  is  greater  than  in  this 
country. 

It  must  be  further  noted,  however,  that  the  cost  of  weaving 
is  not  merely  a  question  of  what  the  weaver  receives  per  yard. 
The  ratio  of  other  labor  to  weaver 's  labor  varies  greatly  from 
mill  to  mill  and  no  general  statement  can  be  made  regarding 
it.  The  cost  of  this  other  labor,  such  as  foremen,  slashers, 
warpers,  drawers-in,  loom  fixers,  is  not  reduced  by  the  fact 
that  the  weaver  tends  a  large  number  of  looms.  Conse- 
quently the  total  labor  cost  of  weaving  is  not  reduced  in  pro- 
portion to  the  reduction  of  the  actual  weaver's  rate  per  yard, 
by  the  fact  that  a  larger  number  of  looms  is  tended  by  one 
operative. 

Keeping  the  above  facts  in  mind  it  may  be  stated  that,  in  the 
case  of  a  large  variety  of  plain  goods,  the  labor  cost  of  turn- 
ing yarn  into  cloth  in  the  United  States  is  not  greater  and  in 
some  cases  is  lower,  than  in  England.  For  cloths  woven 
on  automatic  looms,  this  is  especially  the  case;  but  on  certain 
classes  of  fabrics  the  same  holds  true  for  plain  looms  due  to 
the  greater  number  of  looms  per  weaver  in  this  country. 
This  does  not  necessarily  indicate  any  individual  superiority 
on  the  part  of  the  American  weaver.  It  is  a  matter  of  dif- 
ference in  industrial  policy,  whether  determined  by  the  manu- 
facturer or  the  laborer,  and  it  explains  the  difference  in  the 
methods  of  production  which  prevail  at  the  present  time. 
Where  the  automatic  loom  is  now  used  in  England  a  weaver 
frequently  tends  20  looms,  as  is  commonly  done  in  the  United 
States. 

In  the  case  of  finer  goods,  however,  especially  figured  goods 
with  complicated  weaves,  the  cost  of  weaving  is  higher  here 
than  in  England.  This  is  due  largely  to  the  fact  that  the 
difference  in  the  number  of  the  looms  tended  per  weaver  is 
less  than  in  the  case  of  plain  goods.  On  a  large  part  of  these 
fancy  goods  (those  requiring  more  than  one  kind  of  filling) 
the  automatic  loom  cannot  be  used.  Even  disregarding  the 
question  of  automatic  looms,  the  difference  in  the  number  of 


240        SOME  FINDINGS  ON  COTTON  MANUFACTURES 

looms  tended  per  weaver  on  such  fabrics  is  less  than  in  the 
case  of  plain  cloths.  Consequently  the  comparatively  small 
difference  in  output  per  weaver  does  not  offset  the  higher 
wages  paid  in  this  country. 

Figures  are  presented  in  the  report  showing  that  although" 
labor  costs  in  the  cotton  industry  are  in  many  cases  lower  in 
the  United  States  than  in  England,  yet  the  actual  hourly  earn- 
ings in  this  country  are,  in  most  of  the  principal  occupations, 
much  greater. 

The  conclusion  that  under  present  methods  of  production 
on  many  plain  fabrics  the  cost  of  production  is  not  greater  in 
this  country  is  also  borne  out  by  a  comparison  of  English  and 
American  mill  prices.  A  comparison  of  such  prices  on  a 
large  variety  of  these  fabrics  in  England  and  the  United 
States  for  the  date  of  July  1,  1911,  shows  that  in  the  case  of 
plain  goods  the  American  price  at  the  mill  was  in  no  case 
much  above  the  English  mill  price,  while  in  the  majority  of 
cases  it  was  lower.  It  should  be  noted,  however,  that  Amer- 
ican prices  of  this  date,  relative  to  the  price  of  cotton,  were 
somewhat  lower  than  normal.  The  English  prices  are  the 
regular  quotations  for  the  home  market,  and  are  not  neces- 
sarily the  prices  for  export  and  for  neutral  markets.  In  the 
case  of  fancy  goods,  however,  where  the  looms  tended  are 
necessarily  less,  the  American  mill  prices  were  in  most  cases 
higher  than  the  English. 

The  subject  of  prices  is  referred  to  below,  but  the  fact  that 
in  the  case  of  a  number  of  leading  fabrics  the  American  man- 
ufacturer is  selling  at  less  than  is  the  English  manufacturer 
is  corroborative  of  the  statement  that  plain  goods  can  be  man- 
ufactured as  cheaply  in  this  country  as  in  England.  The 
report  also  gives  information  as  to  the  ability  of  the  American 
manufacturer  to  compete  in  neutral  markets  on  goods  of  this 
kind. 

Cost  of  finishing.  Finishing  includes  the  processes  of 
bleaching,  printing,  dyeing,  mercerizing,  etc.  It  is  the  gen- 
eral rule  in  England  that  the  linishing  of  cotton  fabrics  is 


SOME  FINDINGS  ON  COTTON  MANUFACTURES         241 

carried  on  in  establishments  separate  and  distinct  from  the 
weaving  mills.  This  is  also  true  in  large  measure  in  the 
United  States.  Since  the  converter  or  the  weaving  manufac- 
turer must  pay  the  actual  commission  charges,  a  comparison 
of  these  finishing  charges  in  England  and  the  United  States  is 
adequate  to  show  the  relative  cost  of  finishing  in  the  two 
countries. 

A  comparison  of  sixty  specific  samples  for  which  finishing 
data  were  obtained  shows  that  in  most  cases  the  differences 
between  the  charges  in  the  two  countries  were  slight,  but  that 
the  American  charges  were  slightly  lower  on  most  of  the 
samples. 

Duties  in  relation  to  costs  of  weaving  and  finishing.  .  .  . 
In  nearly  all  cases  the  duty  is  more  than  80  per  cent,  of  the 
total  American  cost  of  conversion,  and  in  a  majority  of  cases 
it  more  than  equals  the  entire  conversion  cost  in  this  country. 
There  are  goods  in  which  the  ratio  of  manufacturing  cost  to 
the  total  cost  (which  includes  the  value  of  the  material  used) 
is  small,  and  the  actual  ad  valorem  rates  of  duty — that  is,  the 
duties  on  the  selling  price  of  the  finished  fabric — range  from 
20  per  cent,  to  45  per  cent.,  with  only  four  cases  in  which  the 
duty  is  over  50  per  cent. 

The  above-mentioned  list,  as  stated,  includes  only  standard 
goods  of  simple  construction  (plain,  twill,  or  sateen).  A 
further  comparison  is  made  on  100  selected  samples,  covering 
a  wide  range  of  fabrics,  as  sold  at  retail.  It  is  impracticable 
to  draw  any  general  average  from  these  samples,  but  the  facts 
for  each  one  are  set  forth  in  the  report.  In  general,  it  may 
be  said  that  the  ratio  of  duty  to  domestic  cost  diminishes  as 
the  character  of  the  weave  becomes  more  complicated  and 
the  number  of  looms  tended  per  operative  diminishes. 

These  figures  show  a  large  number  of  costs  in  which  the 
duty  per  square  yard  on  the  cloth  unfinished  (in  the  gray) 
is  more  than  equal  to  the  total  conversion  cost.  ...  In  the 
greater  number  of  cases  the  duties  are  greater  than  the  total 
domestic  cost  of  spinning  and  weaving. 

16 


242         SOME  FINDINGS  ON  COTTON  MANUFACTURES 

These  same  figures,  taken  with  others  presented  in  the  re- 
port, show  that  the  additional  duties  imposed  on  finishing 
processes  bear  little  relation  to  the  increased  costs  of  these 
processes.  ...  In  the  majority  of  cases,  so  far  as  the  actual 
samples  are  concerned,  for  which  cost  figures  were  secured, 
the  increase  in  duty  is  in  excess  of  the  total  actual  increase 
in  cost,  due  to  the  finishing  processes.  .  .  . 

American  retail  prices.  As  already  stated,  many  standard 
fabrics  of  simple  construction  are  sold  by  American  manu- 
facturers at  a  price  as  low  as  or  lower  than  that  of  the  English 
manufacturer.  On  the  other  hand,  the  English  mill  price  of 
finer  fabrics  is  in  most  cases  lower  than  in  this  country;  but 
it  is  only  in  the  case  of  very  few  fancy  specials  that  the  Amer- 
ican mill  price  is  greater  than  the  English  mill  price  by  any- 
thing like  the  full  amount  of  the  present  duty.  It  does  not 
follow,  however,  that  the  American  consumer  gets  his  goods 
at  the  same  price  as  the  English  consumer.  One  of  the  most 
interesting  results  of  the  investigation  is  to  be  found  in  the 
facts  included  in  the  report  regarding  the  different  methods 
of  distribution  in  the  two  countries  and  the  greater  margin 
which  exists  between  the  price  at  which  the  manufacturer 
sells  his  goods  and  the  price  at  which  the  consumer  buys 
them  in  this  country  as  compared  with  similar  prices  in  Eng- 
land. The  relation  of  the  tariff  to  the  prices  paid  by  con- 
sumers can  only  be  understood  by  fully  comprehending  the 
significance  in  American  trade  of  the  principle  of  "set  prices." 
This  principle  is  fully  explained  in  the  report,  and  many 
figures  are  given  to  show  mill  price,  converter's  price,  job- 
ber's price,  and  retail  price. 

The  most  common  retail  prices  for  different  kinds  of  cotton 
cloth  are  5,  7%,  8%,  10,  12%,  15,  19,  25,  29,  35,  and  50  cents 
a  yard.  These  prices  in  turn  fix  the  prices  which  the  jobber 
can  charge  the  retail  merchant  in  order  to  bring  the  price  of 
the  fabric  inside  a  given  "set  price"  to  the  consumer,  and 
these  in  their  turn  determine  the  prices  which  the  jobber  can 
.afford  to  pay  the  manufacturer.  The  result  is  that  under  the 


SOME  FINDINGS  ON  COTTON  MANUFACTURES          243 

existing  system  of  distribution  the  effect  of  any  change  in 
cost  of  production  or  in  mill  price  cannot  be  determined  ex- 
cept in  relation  to  the  "set  price''  of  the  retail  trade.  In 
some  cases  a  reduction  of  one  cent  a  yard  in  the  mill  price 
might  be  just  enough  to  enable  the  jobber  to  sell  at  a  price 
which  would  bring  the  goods  within  a  lower  retail  class, 
thereby  possibly  saving  as  much  as  6  cents  a  yard  to  the  con- 
sumer. In  another  case  a  reduction  in  price  of  3  or  4  cents 
a  yard  might  not  be  sufficient  to  bring  the  cloth  into  the  lower 
class,  and  in  this  case  the  whole  reduction  in  mill  price  would 
go  to  the  jobber  or  retailer,  or  both,  while  the  consumer  would 
pay  the  same  price  as  before. 

It  may  be  said  in  general  that  goods  which  are  sold  at  the 
mill  at  from  8  to  9  cents  reach  the  consumer  commonly  at  15 
cents  per  yard. 

When  the  mill  price  is  10  cents  per  yard,  the  fabric  is 
thrown  into  a  different  classification  and  will  reach  the  con- 
sumer at  19  cents.  An  increase  of  the  mill  price  from  10  to 
ll!/2  cents  would  probably  not  affect  the  price  to  the  consumer. 
When,  however,  the  mill  price  goes  to  12  cents,  the  consumer 
will  pay  25  cents.  A  further  increase  in  the  mill  price  of 
2  cents  in  this  case  would  not  change  the  price  to  the  consumer. 

With  a  mill  price  of  14  cents  the  consumer  would  still  pay 
25  cents  retail.  Where  the  mill  price  is,  however,  15  cents, 
the  cloth  enters  another  classification  and  probably  reaches 
the  consumer  at  29  or  35  cents.  It  will  be  seen,  then,  that  an 
increase  of  2  cents,  from  12  cents  to  14  cents,  does  not  affect 
the  25-cent  retail  price,  while  an  increase  of  1  cent,  from  14}/o 
cents  to  15  y2  cents,  may  increase  the  price  to  the  consumer 
by  10  cents. 

The  same  facts  are  brought  out  clearly  by  a  study  of  the 
course  of  mill  prices,  jobber's  prices,  and  retail  prices  of 
the  same  fabric  over  a  period  of  years.  A  good  many  exam- 
ples of  this  are  shown  in  the  report.  To  illustrate  by  a  cer- 
tain sample  quilt :  This  was  sold  by  the  mill  in  1908  for  62y2 
cents  and  reached  the  consumer  at  $1.  In  1910  the  mill  price 


244         SOME  FINDINGS  ON  COTTON  MANUFACTURES 

went  up  to  75  cents,  an  increase  of  I2y2  cents,  which  increased 
the  retail  price  paid  by  the  consumer  to  $1.50. 

Another  quilt  of  a  little  lower  grade  sold  in  the  earlier 
period  at  the  mill  for  58y2  cents;  jobber's  price,  70  cents; 
retail  price  $1.  In  1910  the  same  quilt  was  selling  for  671/2 
cents  at  the  mill;  jobber's  price  75  cents;  retail  price,  $1.  In 
the  case  of  the  first  quilt  an  increase  in  the  mill  price  of  121/2 
cents  increased  the  price  to  the  consumer  by  50  cents,  while 
in  the  case  of  the  other  quilt  an  increase  of  9  cents  at  the  mill, 
in  the  same  year,  did  not  increase  the  retail  price  at  all.  The 
reason,  of  course,  was  that,  the  second  quilt  being  of  a  little 
lower  value,  the  increase  did  not  quite  bring  it  out  of  the  $1 
class. 

These  facts,  besides  being  of  interest  as  showing  the  rela- 
tion of  the  consumer  to  the  producer  in  this  country,  are 
of  importance  in  considering  the  effect  of  tariff  changes. 
Assuming  that  the  method  of  distribution  remains  the  same, 
it  would  appear  that  the  same  rule  would  hold,  whether  the 
jobber  should  buy  his  goods  of  the  domestic  or  the  foreign 
manufacturer.  We  have  seen  that  a  slight  reduction  in  the 
price  the  jobber  pays  to  the  producer  might  mean  a  large 
reduction  in  the  price  to  the  consumer.  Conversely,  a  con- 
siderable reduction  in  the  mill  price  might  have  no  effect  on 
what  the  consumer  must  pay.  For  exactly  the  same  reasons, 
on  the  one  hand,  a  slight  reduction  in  duty  might  mean  a 
much  more  than  proportional  reduction  in  price  to  the  con- 
sumer, whereas,  on  the  other  hand,  a  very  material  reduction 
in  the  duty  might  have  no  effect  at  all  in  decreasing  the  retail 
price. 

This  method  of  distribution  is  much  more  firmly  fixed  in 
the  United  States  than  in  other  countries.  This  fact,  com- 
bined with  the  lower  margin  abroad  between  the  mill  price 
and  jobber's  price  and  the  lower  margin  between  the  jobber's 
price  and  the  retailer's  price,  as  compared  with  this  country, 
brings  about  the  result  that  goods  which  are  manufactured 
at  the  same  cost  in  England  and  the  United  States  and  sold 


SOME  FINDINGS  ON  COTTON  MANUFACTURES         245 

at  the  same  price  in  both  countries  at  the  mill  nevertheless 
reach  the  consumer  in  the  two  countries  at  quite  different 
prices. 

English  retail  prices.  A  few  comparisons  may  be  given 
here  to  show  the  wider  margin  between  manufacturer's  prices 
and  retailer's  prices  in  this  country  as  compared  with  Eng- 
land. Thus  one  fabric  which  sells  at  the  mill  in  the  United 
States  at  Sy2  cents  a  yard  will  be  jobbed  at  11  cents  and  sold 
at  retail  at  15  cents.  The  identical  fabric  in  England  would 
sell  at  the  mill  for  the  same  price — 8%  cents — be  jobbed  at 
9.75  cents  and  retail  at  13%  cents. 

A  fabric  selling  at  the  mill  in  the  United  States  at  10% 
cents  would  be  jobbed  at  12%  cents  and  sold  to  the  consumer 
at  19  cents,  or  possibly  25  cents.  The  same  fabric  selling 
at  the  mill  in  England  at  a  price  identical  with  that  paid  at 
the  American  mill  would  be  jobbed  at  11%  cents  and  would 
reach  the  consumer  at  15  cents. 

A  fabric  selling  at  the  mill  in  the  United  States  at  12  cents 
would  be  jobbed  at  16%  cents  and  reach  the  consumer  at  25 
cents.  The  same  fabric  with  the  same  mill  price  in  England 
would  be  jobbed  at  14  cents  and  reach  the  consumer  at  19 
cents.  In  the  case  of  these  particular  samples  it  will  be  seen 
that  the  price  received  by  the  manufacturer  is  the  same  in  both 
countries,  but  that  the  American  consumer  pays  a  decidedly 
higher  price  than  the  British  consumer. 

General  conclusions.  In  conclusion  it  may  be  stated  that 
the  foreign  cost  of  spinning  is  less  than  in  the  United  States, 
as  shown  by  the  figures  above.  The  same  holds  true  for 
weaving  fancy  fabrics,  on  which  the  number  of  looms  to  the 
weaver  in  this  country  is  not  much  greater  than  the  number  of 
looms  to  the  weaver  abroad.  On  account  of  the  different  mill 
methods  in  this  country,  the  domestic  labor  cost  of  weaving 
on  a  large  variety  of  plain  fabrics  of  wide  consumption  is 
below  the  foreign  cost.  Except  in  the  case  of  a  few  special 
fabrics,  and  in  the  case  of  various  manufactured  articles, 
some  of  which  are  produced  in  this  country  to  a  very  slight 


246         SOME  FINDINGS  ON  COTTON  MANUFACTURES 

extent,  the  American  industry  practically  supplies  the  whole 
consumption.  The  imports  of  yarn  in  1910  were  less  than 
one-half  of  1  per  cent,  of  the  home  production  in  pounds. 
The  imports  of  cotton  cloth  were  less  than  2  per  cent,  of  the 
home  production  in  value.  Mill  prices  are  in  many  cases  as 
low  in  this  country  as  in  the  world 's  markets.  Where  higher, 
as  in  the  case  of  the  finer  classes  of  products,  they  are  rarely 
higher  by  anything  like  the  whole  amount  of  the  duty.  The 
effect  of  the  present  tariff,  then,  in  most  cases  is  not  so  much 
to  add  the  duty  to  the  domestic  manufacturer's  price  as  to 
secure  him  the  American  market;  and,  in  the  case  of  most 
articles  of  widest  consumption,  to  prevent  the  competition 
of  the  foreign  manufacturer,  either  in  normal  or  abnormal 
times.  On  account  of  more  costly  methods  of  distribution  in 
this  country  from  producer  to  consumer,  the  latter  pays  a 
decidedly  higher  retail  price  than  the  European  consumer, 
even  in  the  case  of  fabrics  on  which  the  cost  of  production  and 
the  mill  price  are  as  low  here  as  there. 


COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY 

[HEBBEBT  KNOX  SMITH,  the  Commissioner  of  Corporations,  submitted 
to  the  President,  Jan.  22,  1912,  a  report  on  the  cost  of  production  in 
the  steel  industry.  Accompanying  the  report  was  a  letter  of  submittal 
which  in  effect  is  a  summary  of  the  results  of  the  inquiry.  This 
letter  is  here  reproduced  entire  to  show  not  only  the  facts  and  con- 
clusions but  the  form  in  which  such  matters  are  presented  to  the 
President.  (Report  on  the  Steel  Industry,  Part  II,  cost  of  production, 
preliminary  report,  pp.  xiii-xviii. )  ] 

DEPARTMENT  OF  COMMERCE  AND  LABOR, 

BUREAU  OF  CORPORATIONS, 
Washington,  January  22,  1912. 

SIR  :  I  have  the  honor  to  submit  a  report  on  the  cost  of  pro- 
duction of  iron  and  steel. 

The  cost  of  steel  making  is  a  basic  industrial  fact,  which 
bears  on  tariff  legislation,  prices  and  profits  in  a  great  indus- 
try, and  the  concentrated  control  of  a  great  natural  resource. 

The  Bureau  has  used  the  actual  records  of  companies  cov- 
ering, roughly,  two-thirds  of  the  country's  production  of  iron 
and  steel  for  1902  to  1906.  These  data  are  most  complete. 
More  limited  figures  for  1902  to  1910  make  it  clear  that  these 
five-year  figures  substantially  represent  present  conditions 
also. 

The  costs  of  the  United  States  Steel  Corporation  for  the 
chief  materials  and  products  are  also  given  for  1910. 

During  1902  to  1906  the  steel  industry  was  based  on  Lake 
ore,  but  very  low  costs  for  Southern  pig  iron  appear  in  the 
report. 

"Book  costs"  and  " intercompany "  profits.  Many  of 
these  companies  were  highly  "integrated";  that  is,  they  linked 
up  under  one  control,  through  various  subsidiaries,  ore  mines, 

247 


248      COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY 

blast  furnaces,  steel  works,  etc.  Their  '  *  cost  sheets, ' '  however, 
did  not  correspond  with  this  integration.  The  costs  of  each 
subsidiary  were  shown  as  though  it  were  independent,  and 
included  profits  paid  to  other  subsidiaries.  To  illustrate,  one 
subsidiary  of  a  combination,  operating  blast  furnaces,  would 
pay  to  another  subsidiary,  which  mined  ore,  a  price  for  ore 
that  included  a  profit  to  the  ore  company.  This  price  would, 
however,  be  entered  by  the  furnace  company  as  a  part  of  its 
costs.  That  is,  they  were  "book  costs,"  and  they  included 
considerable  profits  really  received  by  the  same  interests. 

These  intermediate  profits  are  very  important.  For  ex- 
ample, the  average  "book  cost"  of  Bessemer  pig  iron  over 
the  five-year  period  was  $13.89  per  ton.  "Transfer"  profits 
were  $1.79,  leaving  a  net  cost  of  $12.10.  (Gross  tons  are  used 
throughout,  except  where  otherwise  specified.) 

The  bureau  deducted  these  intermediate  "transfer"  profits 
for  all  the  important  simpler  products.  The  resulting  "re- 
vised cost"  must,  however,  be  handled  with  great  caution. 
The  margin  between  this  revised  cost  and  the  selling  price 
is,  of  course,  much  larger  than  the  margin  over  the  "book 
cost";  but,  on  the  other  hand,  that  larger  margin  must  cover 
all  the  stages  of  production,  and  therefore  a  much  larger  in- 
vestment. The  profit  above  the  "book  cost"  of  a  subsidiary 
is  to  be  applied  simply  to  the  investment  of  that  company. 
On  the  other  hand,  the  profit  above  the  revised  cost  of  an 
integrated  company,  carrying  through  many  stages  of  produc- 
tion, must  ~be  set  against  that  entire  investment. 

The  Bureau  has  presented  the  cost  data,  combined  for  a 
number  of  companies,  in  two  forms  for  each  product:  (1)  It 
gives  first  the  average  book  cost  thereof;  (2)  it  has  then  de- 
ducted the  average  intermediate  "transfer"  profits,  thus  show- 
ing the  revised  cost. 

One  of  these  companies,  the  United  States  Steel  Corpora- 
tion (hereafter  referred  to  as  the  Steel  Corporation),  has  also 
large  intercompany  profits  on  transportation,  chiefly  in  carry- 
ing its  ore  on  its  own  railroads.  In  the  Steel  Corporation's 


COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY      249 

costs,  which  are  given  later,  these  "transportation"  profits 
are  also  deducted;  but  not  here.  Only  the  Steel  Corporation 
has  such  profits  to  any  considerable  degree,  and  to  deduct 
them  in  the  present  combined  figures  would  give  an  average 
for  all  companies  which  would  be  true  neither  for  the  Steel 
Corporation  nor  for  the  other  concerns. 

Cumulative  effect  of  cost  of  ore.  A  fundamental  fact 
is  the  cost  and  profit  on  ore.  Ore  is  the  raw  material  for 
iron  and  steel,  and  its  costs  have  an  underlying  and  cumulative 
effect  through  all  stages  of  production  and  ultimately  on  the 
prices  of  the  finished  product.  The  report  shows  that  there 
were  high  intermediate  profits  on  ore  going  into  pig  iron, 
with  marked  cumulative  effect  on  all  finished  products. 

Cost  of  steel  rails.  It  is  impossible  to  give  here  the  de- 
tailed cost  figures  of  the  full  report.  Simply  the  general 
principles  are  stated,  the  nature  of  the  information,  and  its 
more  striking  relations  to  the  public  interest.  An  illuminating 
view  of  costs  in  general,  however,  can  be  had  from  an  outline 
of  steel-rail  production  and  costs. 

Starting  with  the  chief  raw  materials,  ore  and  coke,  the 
"book  cost"  of  ore  for  the  five-year  period  was  $2.64.  The 
only  "transfer"  profit  in  the  cost  of  ore  itself  was  an  in- 
tercompany royalty  of  $0.02  per  ton,  leaving  a  net  average 
cost  of  ore  of  $2.62. 

For  Connellsville  coke,  the  principal  kind  used,  the  cost 
was  $1.43  (net  ton),  with  no  intermediate  profits. 

Passing  now  to  the  next  step,  Bessemer  pig  iron.  Inter- 
mediate profits  in  ore  and  in  coke,  as  they  go  into  pig  iron, 
are  large.  Furthermore,  these  costs,  profits,  and  freights  to 
the  furnace  are  multiplied  because  it  takes  about  1.8  tons  of 
Bessemer  ore  and  over  1  net  ton  of  coke  for  1  ton  of  pig 
iron.  The  average  book  cost  of  the  ore  for  1  ton  of  pig  iron 
was  $7.36;  coke,  $3.81;  and  limestone,  $0.43.  The  so-called 
* '  cost  above  materials, ' '  necessary  for  converting  that  ore  into 
pig  iron,  was :  Labor,  $0.73 ;  other  operating  cost,  $0.80 ;  and 
depreciation  and  general  expense,  $0.76.  The  total  makes  a 


250       COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY 

book  cost  of  pig  iron  of  $13.89.  Taking  out  now  the  transfer 
profit,  $1.79,  there  is  left  a  net  cost  of  $12.10. 

Advancing  to  Bessemer  rail  ingots,  there  appears  a  book  cost 
of  $17.59.  All  the  preceding  intermediate  profits,  however, 
have  been  carried  forward  in  the  book  cost  of  the  raw  ma- 
terial, pig  iron.  Thus,  the  total  "transfer"  profits  for  ingots 
were  $1.84,  leaving  a  net  ingot  cost  of  $15.75. 

For  heavy  Bessemer  rails,  finally,  the  book  cost  was  $21.27. 
This  is  based  on  the  book  cost  of  ingots.  The  final  transfer 
profits  were  $2.47.  Deducting  these  leaves  $18.80  as  the  re- 
vised cost.  The  total  difference  is  thus  a  very  considerable 
amount.  About  one-fourth  of  this  revised  cost  was  for  labor 
in  all  stages  of  production,  as  appearing  directly  in  the  cost 
sheets. 

In  the  text,  the  general  principles  and  form  of  presentation 
for  other  products  are  the  same  as  for  rails. 

Rail  investment.  The  relation  of  these  integration  profits 
to  entire  integration  investment  may  be  roughly  illustrated 
here.  The  price  of  Bessemer  steel  rails  has  been  fixed  for  over 
10  years  at  about  $28  a  ton.  The  cost,  eliminating  transfer 
(but  not  transportation)  profits,  is  $18.80  per  ton.  This 
leaves  a  margin  of  $9.20.  The  total  mining  and  manufactur- 
ing investment  (excluding  transportation  properties)  actually 
behind  this  steel-rail  production,  from  ore  to  rails,  is  from  $80 
to  $55  a  ton.  On  this  investment  the  margin,  $9.20,  represents 
a  profit  of  from  about  11  to  17  per  cent.  The  margin  between 
revised  cost  and  price  must  in  this  way  be  distributed  over 
the  entire  investment  thus  attributable  to  the  product  in  ques- 
tion. 

Large  and  small  companies;  billets.  A  significant  fact  is 
the  difference  between  the  costs  of  large  companies,  which  are 
well  integrated,  and  small  companies,  which  are  not.  A  good 
example  here  is  Bessemer  billets.  In  this  product  interme- 
diate profits  have  also  accumulated  through  ore,  coke,  pig 
iron,  etc.  For  the  group  of  large  companies  the  book  cost  of 
billets  was  $19.89;  for  small  companies,  $22.54.  The  dif- 


COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY       251 

ference  was  $2.65.  But  now  taking  out  transfer  profits,  the 
cost  for  large  companies  was  $17.56  and  for  small  companies 
$21.69,  a  difference  of  $4.13  between  the  two.  The  large 
companies  represented  here  included  the  Steel  Corporation, 
the  Kepublic,  Lackawanna,  and  Jones  &  Laughlin  steel  com- 
panies. 

Part  of  this  difference  in  favor  of  large  companies  must,  of 
course,  cover  a  greater  investment,  due  to  higher  integration ; 
part  is  due  to  superior  efficiency  resulting  from  such  integra- 
tion; but  part  represents  also  monopolistic  control,  especially 
in  ore. 

In  so  far  as  this  difference  means  a  larger  per  cent,  of  re- 
turn on  each  dollar  of  investment,  it  is  a  real  difference  in 
industrial  position  between  the  two  groups.  This  difference 
must  be  considered  in  any  public  action  affecting  both  classes 
of  companies. 

Other  products.  The  Bureau  has  not  attempted  to  revise 
these  costs  beyond  the  simpler  finished  products.  As  the 
elaboration  increased,  the  difficulties  of  revision  increased  dis- 
proportionately. The  chief  intermediate  profits,  however,  are 
in  the  raw  materials,  ore  and  coke,  and  certainly  largely  in- 
cluded in  the  pig  iron.  Accordingly,  they  are  necessarily  car- 
ried forward  into  all  finished  steel  products. 

A  broad  survey  of  "book  costs"  of  steel  products  can, 
however,  be  obtained  from  the  following  table.  These  costs 
liave  not  been  revised,  and  therefore  include  considerable  trans- 
fer profits. 

UNREVISED  BOOK   COSTS. 

Products.  Total  cost. 

Open-hearth    billets $20.87 

Universal  plates 21.82 

Structural 26.52 

Merchant    bars 28.12 

Wire    rods 27.21 

Bright  coarse  wire   ( net  tons) 29.12 

Black  sheets  (net  tons) 39.37 

Tin  and  terne  plate 71 .23 


252      COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY 

Integration  costs  of  United  States  Steel  Corporation.    For 

the  foregoing  combined  costs  of  a  number  of  concerns  the 
Bureau  computed  the  revised  costs.  But  for  the  Steel  Cor- 
poration the  Bureau  received,  from  the  Corporation  itself,  its 
book  costs  of  various  products  and  the  record  which  it  kept 
of  its  own  intermediate  profits  on  such  products  for  the  year 
1910. 

Its  intermediate  profits  are  the  highest  and  its  net  costs  are 
the  lowest.  This  fact,  and  its  unique  character  and  domina- 
ting position,  make  the  costs  of  this  Corporation  a  matter 
of  public  importance. 

The  Steel  Corporation  is  by  far  the  most  highly  integrated 
concern  in  the  industry.  It  not  only  makes  pig  iron,  steel, 
and  most  of  the  various  rolled  products,  besides  some  more 
elaborated  articles,  but  it  also  mines  its  own  ore  and  coal, 
produces  its  own  coke,  and  does  all  this  more  completely  than 
any  competitor.  Finally,  it  links  up  its  ore  mines  with  its 
furnaces  by  its  own  rail  and  vessel  lines  and  dock  companies. 
In  its  control  of  ore  railroads,  both  north  and  south  of  the 
Lakes,  it  stands  in  a  class  by  itself.  For  this  reason  its  * '  trans- 
portation "  profits,  as  well  as  transfer  profits,  are  here  de- 
ducted to  show  its  net  or  "integration"  costs. 

The  results  of  this  integration  and  of  the  Corporation's 
position  in  the  industry  are  shown  by  its  total  integration 
costs,  as  follows: 

Integration  cost  of  ore,  when  mined  and  transported  to  lower 
Lake  ports,  $2.40.  The  book  cost  was  $2.88. 

Bessemer  pig  iron,  integration  cost,  $10.21.  The  book  cost 
was  $14.39.  Included  in  both  cases  is  an  item  of  general 
expense  and  depreciation — "additional  costs" — approximated 
at  $0.50. 

Bessemer  rail  ingots,  integration  cost,  $12.77.  Book  cost, 
$17.45.  (Including  in  both  cases  "additional  costs"  ap- 
proximated at  $0.60.) 

Heavy  standard  Bessemer  rails,  integration  cost,  $16.67. 
Book  cost,  $21.53.  (Including  in  both  cases  "additional 


COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY      253 

costs "  approximated  at  $1.30.)  The  difference  here,  $4.86, 
is  about  equally  divided  between  transportation  profit  and 
transfer  profit.  This  division  for  rails  gives  a  general  idea  of 
the  importance  of  transportation  profits. 

These  integration  costs  are  the  lowest  in  the  domestic  in- 
dustry. They  can  not,  however,  be  compared  with  the  com- 
bined figures  previously  given  for  1902  to  1906,  because  of 
the  difference  in  the  kinds  of  profit  eliminated,  the  difference 
in  dates,  and  the  difference  in  companies. 

The  intermediate  profits  which  were  eliminated  to  reach 
these  low  costs  are  the  largest  per  ton  in  the  industry.  But 
they  must  be  set  against  the  most  extensive  investment  per 
ton  of  product.  The  margin  between  these  costs  and  selling 
prices  must  cover  a  return  on  all  the  agencies  of  mining, 
transportation,  and  manufacture,  from  the  ore  and  coal  to 
the  finished  product. 

Profits  on  railroads  and  ore  reserves.  The  most  significant 
profits  were  those  on  ore  and  on  railroad  transportation.  In 
so  far  as  the  Steel  Corporation  enjoys  monopolistic  power, 
it  lies  chiefly  in  these  two  factors. 

The  Bureau's  revisions  indicate  a  rate  of  profit  of  about 
10  per  cent,  (for  the  period  1902  to  1906)  on  the  average 
total  investment  of  the  Steel  Corporation  in  ore  (as  estimated 
by  the  Bureau  in  Part  I  of  this  report,  already  issued). 
Whether  such  a  rate  of  return  is  reasonable  in  itself  is  not 
of  first  importance.  The  essential  fact  is  that  10  per  cent, 
profit  is  earned  on  the  whole  ore  holding.  Thus,  while  earn- 
ing 10  per  cent.,  the  Steel  Corporation  can  also  carry  a  vast 
ore  reserve  far  in  excess  of  its  present  requirements  and  so 
large  as  to  have  distinctly  monopolistic  features,  can  exercise 
on  the  entire  industry  the  undefined  but  real  power  that  such 
concentration  of  the  ultimate  resource  must  give,  and  can 
assure  itself  of  the  certain  increment  of  value  that  will  in- 
evitably occur  with  the  diminishing  of  our  available  ore  supply 
so  long  as  the  existing  conditions  of  concentration  are  allowed 
to  continue. 


254   COST  OF  PRODUCTION  IN  THE  STEEL  INDUSTRY 

The  ore  rates  on  its  two  ore  railroads  have  been  excessive. 
In  so  far  as  they  exceed  a  reasonable  return,  they  not  only 
benefit  the  Corporation  by  a  high  profit  on  the  ore  of  other 
shippers,  but  correspondingly  handicap  the  business  of  such 
competitors,  who  must  ship  over  these  roads.  These  rates 
were  reduced  in  November,  1911. 

Such  control  of  public  agencies  of  transportation  by  an  in- 
dustrial corporation  carries  with  it  just  such  possibilities  of 
abuse,  and  raises  the  question  whether  the  public  interest  in 
this  industry  does  not  require  a  segregation  of  the  ore  railroads 
of  the  Steel  Corporation. 

Very  respectfully, 

HERBERT  KNOX  SMITH, 
Commissioner  of  Corporations. 

The  PRESIDENT. 


THE  STANDARD  OIL  TRUST 

[THE  Standard  Oil  Company  was  one  of  the  first  corporations  to 
organize  in  the  form  of  a  "trust"  in  the  legal  sense.  The  great  wealth 
of  its  chief  stockholders  and  its  large  measure  of  monopolistic  control 
have  made  it,  in  the  popular  mind,  the  typical  "trust."  May  2,  1906, 
the  Commissioner  of  Corporations  issued  a  report  on  the  Transporta- 
tion of  Petroleum,  and  May  20,  1907,  a  report  of  nearly  1400  pages  on 
the  Petroleum  Industry,  most  of  it  relating  to  the  Standard  Oil  Com- 
pany. A  few  comparatively  brief  extracts  from  the  later  report  are 
here  given  to  illustrate  the  evidence  as  to  the  sources  of  this  company's 
monopoly  power.  A  number  of  uncomplimentary  adjectives  have  been 
omitted  in  order  that  they  may  not  distract  the  student's  attention 
from  the  statements  of  facts.  The  first  part  of  the  selection  is  from 
Part  I,  pp.  xv-xx  of  the  Report.] 

Its  dominant  position.  In  1904  the  Standard  Oil  Company 
and  affiliated  concerns  refined  over  84  per  cent,  of  the  crude 
oil  run  through  refineries;  produced  more  than  86  per  cent, 
of  the  country's  total  output  of  illuminating  oil;  maintained 
a  similar  proportion  of  the  export  trade  in  illuminating  oil; 
transported  through  pipe  lines  nearly  nine-tenths  of  the  crude 
oil  of  the  older  fields  and  98  per  cent,  of  the  crude  of  the 
mid-continent,  or  Kansas-Territory  field;  secured  over  88  per 
cent,  of  the  sales  of  illuminating  oil  to  retail  dealers  through- 
out the  country,  and  obtained  in  certain  large  sections  as  high 
as  99  per  cent,  of  such  sales.  It  also  controlled  practically 
similar  proportions  of  the  production  and  marketing  of  gaso- 
line and  lubricating  oil.  While  handling  a  much  smaller  pro- 
portion of  the  oil,  both  crude  and  refined,  in  the  Gulf  and 
California  fields,  this  fact  has  little  significance  as  to  its  con- 
trol of  illuminating  oil,  gasoline,  and  lubricating  oil,  for  the 
reason  that  the  crude  of  those  particular  fields  produces  a 

255 


256  THE  STANDARD  OIL  TRUST 

comparatively  small  per  cent,  of  these  products  and  is  used 
mostly  for  fuel. 

The  Standard  has  as  its  only  competitors  in  the  refining 
business  about  seventy-five  small  refineries,  whose  total  con- 
sumption of  crude  oil  is  less  than  that  of  a  single  one  of 
the  Standard,  to  wit,  the  Bayonne  refinery,  and  less  than  one- 
fifth  of  the  Standard's  total  consumption.  Over  fifteen  of 
these  competitors  are  dependent  for  their  supply  of  crude 
oil  upon  the  Standard's  pipe  lines,  and  are  so  restricted  by 
this  dependence  as  to  be  capable  of  little  effective  competition 
or  growth.  In  the  pipe-line  business  of  the  eastern  and  mid- 
continent  fields  it  has  up  to  the  present  but  one  compet- 
itor of  any  significance — the  Pure  Oil  Company — and  that 
competitor's  pipe-line  business  is  not  more  than  one-twentieth 
of  that  of  the  Standard.  .  .  . 

History  of  form  of  organization.  Starting  with  the 
partnership  of  Bockefeller,  Andrews  &  Flagler,  formed  in 
1867,  in  1870  these  interests  took  the  corporate  form  of  the 
Standard  Oil  Company  of  Ohio,  with  a  capitalization  of  $1,- 
000,000.  At  that  time  they  controlled  not  over  10  per  cent, 
of  the  refining  business  of  the  country.  Within  ten  years 
from  that  date  the  process  of  combination  under  these  in- 
terests had  been  so  rapid  that  they  admittedly  controlled  from 
90  to  95  per  cent,  of  this  branch  of  the  oil  industry,  and  their 
control  of  the  pipe-line  business  had  increased  with  equal 
rapidity.  This  commanding  position  having  been  gained,  in 
1882  they  concentrated  their  holdings  under  the  Standard 
Oil  Trust,  which  included  the  entire  stock  of  fourteen  com- 
panies and  a  majority  interest  in  twenty-six  additional  con- 
cerns. The  capitalization  of  the  trust  was  $70,000,000  and 
the  appraised  valuation  of  its  property  over  $55,000,000. 
Nine  individuals,  acting  as  trustees  of  the  trust,  owned  to- 
gether on  that  date  more  than  $46,000,000  out  of  the  $70,- 
000,000  of  the  trust  certificates  issued.  .  .  . 

In  1892,  as  a  result  of  a  legal  attack  on  this  form  of 
organization,  the  trustees  announced  that  the  trust  would  be 


THE  STANDARD  OIL  TRUST  257 

dissolved,  and  a  process  of  so-called  dissolution  took  place. 
This  in  no  way,  however,  affected  the  original  control  of  the 
aforesaid  individuals  over  the  entire  concern,  because  the 
stocks  of  each  of  the  various  subsidiary  corporations  were 
not  returned  to  their  original  holders,  but  were  allotted  to 
the  holders  of  trust  certificates  on  a  pro  rata  basis,  with  the 
result  that  the  trustees,  who  had  previously  held  the  majority 
of  the  trust  certificates,  now  held  a  majority  interest  in  each 
one  of  the  constituent  companies. 

In  1898  contempt  proceedings  were  started  against  the 
Standard  Oil  Company  of  Ohio  on  the  ground  that  it  had  not 
withdrawn  from  the  trust.  Thereupon,  pending  the  decision, 
these  interests  selected  the  Standard  Oil  Company  of  New 
'Jersey  as  a  holding  corporation  for  the  constituent  Standard 
companies,  and  increased  its  common  stock  to  $100,000,000  for 
that  purpose.  This  company  then  gave  its  own  stock  in  ex- 
change for  the  stocks  of  such  companies.  This  change,  like 
the  previous  one  of  1892,  as  was  its  obvious  purpose,  left  the 
monopoly  power  of  the  Standard  capitalists  undisturbed.  The 
same  group  of  men  who  had  been  holders  of  a  majority  of 
the  trust  certificates,  then  of  a  majority  of  the  stocks  in  the 
subsidiary  companies,  now  became  holders  of  a  majority  of 
the  stock  of  the  controlling  New  'Jersey  company. 

The  outstanding  stock  of  this  company  is  about  $98,000,- 
000.  It  controls  at  least  10  refining  companies,  4  lubricating- 
oil  companies,  3  crude-oil  producing  companies,  13  pipe-line 
and  other  transportation  companies,  6  marketing  companies, 
16  natural-gas  companies,  and  15  foreign  concerns,  besides 
having  close  affiliations  with  a  considerable  number  of  other 
concerns.  .  .  . 

Relations  to  railways.  It  is  of  the  utmost  importance  to 
indicate  clearly  those  fundamental  facts  that  form  the  basis 
of  the  Standard's  power.  The  monopoly  of  this  concern  has 
never  rested  on  ownership  of  the  source  of  supply  of  crude 
oil.  Not  over  one-sixth  of  the  total  production  of  crude  in 
the  country  in  1905  came  from  wells  owned  by  the  Standard 

17 


258  THE  STANDARD  OIL  TRUST 

interests.  It  cannot  be  too  strongly  emphasized  that  its 
growth  and  present  power  rests  primarily  on  the  control  of 
transportation  facilities  in  one  form  or  another.  Additional 
means  of  domination  have  been  found  in  local  price  discrim- 
ination and  other  unfair  competitive  methods  in  the  sale  of 
products,  as  well  as  in  the  elimination  of  the  jobber;  but 
throughout  its  entire  history  the  factor  of  transportation  has 
been  the  keystone  of  its  success. 

The  .  .  .  railway  discriminations  obtained  by  the  Standard 
in  its  earlier  years  as  against  its  competitors  did  more  than 
all  other  causes  together  to  establish  it  in  its  controlling  posi- 
tion. Later,  when  the  rebate,  per  se  (that  is,  the  actual, 
physical  repayment  of  part  of  the  freight  rate),  was  sub- 
stantially abandoned,  the  Standard  was  able,  by  compelling 
the  cooperation  of  the  railroads,  to  establish  in  place  thereof 
a  system  of  secret  or  open  discriminations  in  rates  in  its  own 
favor,  covering  almost  the  entire  country  and  of  such  a  nature 
that  throughout  large  sections  it  could  sell  and  make  a  profit 
on  oil  at  prices  which  left  no  profit  for  competitors.  The 
existence  of  many  such  important  railway  discriminations  was 
set  forth  in  full  in  the  report  of  the  Commissioner  on  the 
Transportation  of  Petroleum,  in  May,  1906 ;  and  as  a  result  of 
that  report  all  the  secret  rates  which  had  been  discovered 
were  discontinued,  and  the  discriminations  in  open  rates  have 
largely  been  abandoned. 

Pipe-line  system.  This  system  of  railway  discriminations 
allowed  the  Standard  to  control  substantially  that  link  in 
the  business  that  lies  between  the  refinery  and  the  consumer. 
By  means  of  its  great  pipe-line  system  it  also  controls  the 
gap  between  the  producer  of  oil  and  the  refinery.  It  has 
now  a  pipe-line  system  of  more  than  40,000  miles,  covering 
completely  the  Appalachian,  Lima-Indiana,  Illinois,  and  mid- 
continent  fields,  with  great  trunk  lines  running  to  the  sea- 
board and  to  the  great  markets  and  distributing  centers  where 
its  largest  refineries  are  located.  All  attempts  on  the  part 
of  others  to  construct  competing  pipe  lines  have  been  .  »  „ 


THE  STANDARD  OIL  TRUST  259 

opposed  by  the  Standard,  and  usually  with  success.  By 
means  of  ...  litigation  and  preempting  of  right  of  way,  by 
the  aid  of  railroads  which  refused  rights  of  way  across  their 
lines  and  adjusted  their  rates  so  as  to  injure  competing  pipe 
lines,  by  paying  local  discriminating  premiums  for  crude  oil 
in  the  limited  areas  reached  by  rival  lines,  the  Standard  has 
been  able  to  practically  prevent  the  rise  of  any  efficient  com- 
petitor in  the  pipe-line  business  from  the  older  fields  to  the 
Atlantic  seaboard  or  has  destroyed  or  absorbed  rivals  already 
established. 

Having  thus  established  and  maintained  its  monopoly  of  the 
pipe-line  business,  it  has  in  substance  refused  to  act  as  a  com- 
mon carrier  or  to  transport  and  deliver  oil  for  independent 
producers  or  to  independent  refineries,  and,  where  making  any 
rates  at  all  for  such  transportation,  has  made  them  at  least 
as  high  as  the  railroad  rate  between  the  same  points,  although 
the  cost  of  pipe-line  transportation  is  very  much  less. 

The  economy  of  pipe-line  transportation  as  compared  with 
that  by  rail  is  a  vital  consideration.  A  refiner  wholly  de- 
pendent on  railroads  for  his  crude  supply  cannot  hope  to 
become  a  factor  of  much  importance  in  the  industry.  This 
imperative  condition  of  rail-transportation  costs  has  fixed 
the  location  of  most  independent  refineries  near  the  oil  fields 
and  has  restricted  most  of  their  sales  of  the  refined  products 
to  the  comparatively  small  adjoining  sections.  On  the  other 
hand,  the  Standard 's  comprehensive  pipe-line  system  has  given 
it  the  choice  of  strategic  positions  for  its  refineries  near  to 
the  largest  distributing  and  exporting  centers  of  the  coun- 
try. 

Conditions  making  price  discrimination  possible  [Part  II, 
pages  27-29].  The  methods  of  marketing  oil  products  lend 
themselves  to  this  practice  of  price  discrimination.  Illumina- 
ting oil  and  gasoline — and  the  same  is  in  less  measure  true  of 
other  petroleum  products — are  not  to  any  large  extent  sold 
at  central  markets  or  through  jobbing  concerns  independent 
of  the  refiner.  The  Standard  Oil  Company  sells  most  of  its 


260  THE  STANDARD  OIL  TRUST 

illuminating  oil  and  gasoline  in  the  United  States  directly 
to  retail  dealers  at  their  own  towns.  They  are  largely  de- 
livered to  retail  dealers  at  their  own  stores  by  means  of  tank 
wagons.  Consequently  the  prices  of  oil  and  gasoline  are  in 
general  purely  local  prices.  The  retail  dealer  is  ordinarily 
not  familiar  with  prices  charged  in  other  towns  or  in  central 
markets,  but  even  if  he  were  he  could  not  take  advantage 
of  lower  prices  prevailing  elsewhere  to  buy  oil  there  and  bring 
it  into  his  own  town.  The  cost  of  transporting  oil  in  barrels, 
particularly  in  less  than  carload  lots,  is  higher  than  in  tank 
cars.  Moreover,  tank-wagon  delivery  is  so  much  more  con- 
venient than  barrel  delivery  that  the  retail  dealer  is  ordinarily 
unwilling  to  buy  barrel  oil  even  at  a  lower  price. 

The  Standard  Oil  Company  has  established  the  system  of 
tank-wagon  delivery  in  the  larger  towns  in  all  parts  of  the 
United  States  and  in  a  large  proportion  of  the  smaller  towns 
in  the  more  populous  sections.  ["Of  the  towns  in  which 
deliveries  of  oil  by  tank  wagon  were  reported,  such  deliveries 
were  made  by  the  Standard  Oil  Company  or  some  affiliated 
concern  in  97.7  per  cent."  Part  I,  page  20,]  The  business 
of  its  competitors  is  largely  confined  to  a  limited  area  and  to 
a  limited  number  of  towns  within  that  area.  In  towns  and 
sections  where  there  is  no  competition  the  Standard  can 
charge  monopoly  prices,  and  by  reason  of  the  high  prices  thus 
obtained  it  can  afford  to  reduce  prices  in  competitive  areas 
and  towns  to  a  point  which  leaves  no  profit  for  the  independ- 
ent concern. 

Independent  concerns  are  compelled  to  confine  their  busi- 
ness to  a  limited  area  and  usually  to  a  limited  number  of  places 
in  such  area,  first,  by  reason  of  the  fact,  already  stated,  that 
delivery  in  barrels  is  either  more  expensive  or  less  satisfactory 
than  delivery  by  tank  wagons ;  and  second,  because  the  limited 
volume  of  their  business  does  not  permit  them  to  establish  tank- 
wagon  delivery  in  many  places,  since,  in  order  to  reduce  the 
cost  of  tank-wagon  delivery  to  a  reasonable  amount  per  gallon, 
it  is  necessary  that  a  concern  should  secure  a  considerable 


THE  STANDARD  OIL  TRUST  261 

volume  of  business  in  each  town  it  enters.  Only  a  concern 
with  enormous  capital  could  afford  to  establish  a  marketing 
system  in  competition  with  that  of  the  Standard  throughout 
the  entire  country  and  thereby  force  the  Standard,  if  it  de- 
sired to  cut  prices,  to  sacrifice  profit  on  its  entire  business. 

It  is  clear  from  these  considerations  that  the  Standard 
has  an  enormous  advantage  over  any  of  its  competitors  in  the 
marketing  of  oil.  By  a  vigilant  policy  of  aggressive  attacks 
on  competitors  competition  is  kept  strictly  localized  and  scat- 
tered, and  thus  easily  controlled.  The  Standard  can  make 
huge  profits  on  its  total  business  while  reducing  the  profits 
of  its  competitors  to  a  small  amount,  or  even  forcing  them  to 
sell  at  a  loss. 

Relation  of  differences  in  prices  to  profits.  The  signif- 
icance of  the  extraordinary  differences  in  prices  charged  by 
the  Standard  as  among  different  sections  of  the  country  or 
different  individual  towns  can  be  appreciated  only  in  the  light 
of  the  fact  that  a  very  small  amount  per  gallon  constitutes 
a  fair  margin  of  profit  on  the  investment  in  the  refining  and 
marketing  of  illuminating  oil  and  the  other  principal  petrol- 
eum products.  The  average  investment  of  Standard  refining 
concerns  per  gallon  of  product  annually  is  probably  not  to 
exceed  2y2  cents,  so  that  a  return  of  10  per  cent,  on  the  in- 
vestment in  refining  can  be  secured  on  the  basis  of  a  margin 
of  profit  of  only  about  2y2  mills  per  gallon  for  all  products 
combined.  The  investment  of  the  Standard  in  facilities  for 
marketing  illuminating  oil  and  gasoline,  etc.,  averages  about 
4  cents  per  gallon  of  product  marketed  annually.  A  return 
of  10  per  cent,  on  the  marketing  investment  can  therefore 
be  secured  from  a  profit  margin  of  only  about  4  mills  per 
gallon. 

A  difference  of  about  7  mills  per  gallon  in  the  price  of  illu- 
minating oil  may,  therefore,  mean  the  difference  between  a 
profit  of  10  per  cent,  on  the  investment  in  both  refining  and 
marketing  and  no  profit  at  all.  The  actual  differences  in  price 
between  competitive  and  noncompetitive  towns  and  areas,  after 


262  THE  STANDARD  OIL  TRUST 

making  allowance  for  all  possible  differences  in  cost  of  pro- 
duction and  marketing,  often  amount  to  several  cents  per  gal- 
lon. These  discriminations  in  price  may  mean,  thus,  the  dif- 
ference between  an  enormous  profit  on  investment  and  little 
or  no  profit  or  even  a  loss.  The  destructive  effect  of  the  prac- 
tice of  price  discrimination  upon  the  business  of  independent 
concerns  is  thus  obvious. 

Local  discrimination  [Part  II,  pages  32-33].  The  diffi- 
culty in  comparing  average  State  prices  arising  from  the  un- 
certainty concerning  the  relative  cost  of  manufacturing  the 
oil  sold  in  different  States  may  be  avoided  by  comparing  only 
those  States  which  are  supplied  from  a  single  refinery  or 
from  a  group  of  refineries  having  conditions  so  similar  as  to 
exclude  the  possibility  of  any  material  difference  in  cost. 

Thus,  there  are  a  large  number  of  States  and  parts  of  States 
lying  on  or  near  the  Atlantic  seaboard  and  extending  from 
Maine  to  Florida  which  are  supplied  with  illuminating  oil 
principally  from  a  group  of  Standard  refineries  situated  either 
at  the  seaboard  (New  York,  Philadelphia,  and  Baltimore)  or 
in  and  near  the  Appalachian  oil  field  (Buffalo  and  Olean,  N. 
Y.,  Franklin  and  Pittsburg,  Pa.,  and  Parkersburg,  W.  Va.). 
The  differences  in  the  cost  of  producing  illuminating  oil  at 
these  different  refineries  are  insignificant.  Yet  the  average 
$tate  prices  in  the  territory  supplied  by  them  show  a  very 
wide  range.  In  December,  1904,  the  average  price  in  Dela- 
ware, freight  deducted,  was  7.7  cents.  In  Pennsylvania  the 
average  was  also  relatively  low,  8.7  cents.  On  the  other  hand, 
in  the  State  of  New  York,  itself  containing  several  Standard 
refineries,  the  average  price  was  no  less  than  10  cents;  in 
North  Carolina  and  also  in  New  Hampshire,  10.3  cents;  in 
part  of  South  Carolina  supplied  from  these  seaboard  refineries, 
11.4  cents;  in  Florida,  12.8  cents,  and  in  part  of  Georgia 
supplied  from  this  source,  13  cents,  or  5.3  cents  higher  than 
in  Delaware. 

Again,  there  is  a  great  group  of  States  in  the  interior  of 
the  country,  comprising  almost  the  entire  Mississippi  Basin 


THE  STANDARD  OIL  TRUST  263 

from  the  northern  border  to  the  Gulf  of  Mexico,  which  are 
supplied  with  illuminating  oil  chiefly  from  the  Standard's  re- 
fineries at  Cleveland  and  Lima,  Ohio,  and  Whiting,  Ind. 
These  three  refineries  use  the  same  kind  of  crude  oil,  and  the 
differences  in  cost  among  them  are  insignificant.  Much  the 
greater  part  of  the  area  is,  moreover,  supplied  from  Whit- 
ing alone.  Yet  the  prices  (freight  deducted)  within  the  terri- 
tory supplied  by  them  show  a  range  from  8.5  cents  for  Ohio, 
where  several  independent  refineries  are  situated,  to  13.7  cents 
for  that  part  of  Arkansas  which  is  supplied  from  Whiting. 
In  North  Dakota,  South  Dakota,  Tennessee,  Alabama,  and 
Georgia,  which  are  supplied  largely  from  the  same  source, 
the  prices  range  from  11  to  12  cents  per  gallon. 

Perhaps  the  most  striking  instance  of  sectional  discrimina- 
tion which  has  appeared  during  recent  years  is  on  the  Pacific 
coast.  In  southern  California  there  are  a  number  of  in- 
dependent refineries.  The  Standard  carries  oil  from  its  great 
refinery  near  San  Francisco,  several  hundred  miles  by  water 
and  rail,  and  sells  it  in  southern  California  for  much  less 
than  the  price  at  San  Francisco.  The  average  price,  freight 
deducted,  for  the  southern  part  of  California  in  December, 
1904,  was  7.2  cents  per  gallon,  while  for  the  northern  part  of 
the  State  it  averaged  12.4  cents  per  gallon.  In  Oregon,  sup- 
plied from  the  same  source  the  price  averaged  15.3  cents  per 
gallon,  and  in  Washington,  15.7  cents.  The  price  in  Wash- 
ington and  Oregon  was  thus  more  than  twice  as  high  as  in 
southern  California  for  the  same  oil. 

Differences  in  prices  among  large  cities  [Part  II,  pages 
34-35].  It  is  a  striking  fact  that  some  of  the  largest  cities 
have,  during  recent  years,  paid  very  high  prices  for  illumina- 
ting oil.  This  is  not  because  there  is  no  independent  oil  sold 
in  them,  but  because  the  Standard  prefers  to  allow  the  inde- 
pendents to  do  a  small  volume  of  business  rather  than  to  cut 
prices  against  them.  Thus,  in  December,  1904,  the  price  at 
New  York,  which  is  at  the  very  seat  of  the  Standard's  great- 
est refineries,  was  10.5  cents  per  gallon,  and  at  Boston,  freight 


2G4  THE  STANDARD  OIL  TRUST 

deducted,  10.8  cents  per  gallon.  At  Worcester,  Mass.,  a  much 
smaller  city,  the  price  was  only  7.5  cents.  The  prices  at  Cin- 
cinnati and  Cleveland  were  still  lower,  6.4  cents  and  7  cents, 
respectively.  The  differences  in  cost  of  producing  and 
marketing  the  oil  sold  in  the  cites  just  mentioned  is  insignif- 
icant. The  price  at  Augusta,  Ga,,  was  8.2  cents,  as  compared 
with  10.9  cents  at  Atlanta,  12.1  cents  at  Charleston,  and  12.5 
cents  at  Jacksonville.  All  these  cities  must  have  substantially 
similar  costs.  The  price  at  Minneapolis  and  St.  Paul  was 
7.2  cents,  as  contrasted  with  12.3  cents  at  San  Francisco,  14.5 
cents  at  Seattle,  14.4  cents  at  Denver,  and  no  less  than  16.6 
cents  at  Butte.  Only  a  small  fraction  of  these  differences  is 
due  to  differences  in  costs. 

The  evidence  obtained  from  Standard  concerns  regarding 
marketing  costs  indicates  that,  as  among  most  of  the  large 
cities,  such  differences  cannot  exceed  one-half  or  three-fourths 
cent  per  gallon,  and  that  the  extreme  difference  between  the 
lowest  and  the  highest  would  not  exceed  1  cent  per  gallon. 
The  differences  between  Eastern  and  Western  cities  are  per- 
haps in  part  due  to  higher  cost  of  producing  the  illuminating 
oil  sold  in  the  latter,  but  this  difference  can  scarcely  exceed 
2  cents  per  gallon. 

The  prices  of  gasoline  show  substantially  as  great  differ- 
ences among  States  and  sections  as  the  prices  of  illuminating 
oil. 


.WATER-POWER  DEVELOPMENT  IN  THE 
UNITED  STATES 

[A  BEPOBT  under  the  foregoing  title  was  made  by  the  Commissioner 
of  Corporations  (U.  S.  Bureau  of  Corporations)  and  published  March 
14,  1912.  Some  extracts  are  here  taken  from  the  summary  on  pages 
1-34.] 

Physical  facts  involved.  Prior  to  the  discovery  of 
electrical  transmission  of  power  over  long  distances,  water- 
power  could  be  utilized  only  at  the  power  site.  This  limited 
its  development  in  most  cases  to  comparatively  small  units, 
and  almost  exclusively  to  manufacturing  enterprises.  The 
introduction  of  electric-power  transmission  not  only  provided 
a  means  of  supplying  distant  manufacturing  and  domestic 
demands,  but  also  opened  up  an  entirely  new  power  field, 
namely,  the  operation  of  street  railways  and  lighting  plants, 
and  enormously  increased  the  relative  importance  of  water- 
power.  Thus  the  development  of  water-power  (based  on  in- 
stalled wheel  capacity)  for  railway  and  lighting  purposes 
increased  from  487,000  horse-power  in  1902  to  1,441,000 
horse-power  in  1907  (the  latest  date  for  which  statistics  are 
available),  or  by  nearly  200  per  cent.  In  manufacturing  in- 
dustries, where  transmission  by  electricity  is  infrequent,  water- 
power  development  during  the  period  1900-1905  increased  by 
only  11  per  cent. 

These  comparisons  suggest  the  remarkable  influence  that 
electrical  transmission  has  had  upon  the  development  of  water- 
power  in  recent  years,  and  at  the  same  time  they  indicate  the 
peculiarly  close  natural  relationship  between  the  water-power 
industry  and  public-service  enterprises. 

This  growing  importance  of  the  ' '  commercial ' '  use  of  water- 
power,  its  comparatively  recent  development,  and  the  con- 

265 


266  WATER-POWER  DEVELOPMENT 

sequent  lack  of  an  appreciation  of  its  real  significance,  together 
with  the  established  connection  between  commercial  water- 
power  enterprises  and  public  utilities,  all  demand  that  the 
public  be  furnished  with  accurate  and  comprehensive  infor- 
mation on  this  subject.  This  report  is  an  attempt  to  meet 
that  demand.  .  .  . 

Estimates  of  potential  power.  The  United  States  Geolog- 
ical Survey  estimated  the  "minimum  potential"  water- 
power  of  the  country  at  36,916,250  horse-power,  and  the 
"assumed  maximum'*  at  66,518,500  horse-power,  both  figures 
excluding  storage  possibilities.  "  Storage, "  as  used  in  this 
report,  means  the  extensive  storage  of  water  in  large  reservoirs 
so  as  to  regulate  the  stream  flow  over  considerable  periods. 
It  does  not  refer  to  the  small  accumulation  of  water  in  a  power 
dam;  this  is  referred  to  as  " pondage. "  These  Survey  esti- 
mates of  potential  power  were  arrived  at  by  multiplying  the 
flow  of  the  stream  into  90  per  cent,  of  the  fall.  .  .  . 

Revision  of  Survey  figures.  The  Survey  estimates  require 
some  revision.  .  .  .  Reducing  the  estimates  of  the  Survey  ac- 
cordingly, the  totals  become  26,736,000  horse-power  and  51,- 
398,000  horse-power,  minimum  and  maximum,  respectively. 
...  As  noted  above,  no  allowance  for  storage  has  been  made 
in  these  Survey  estimates.  Various  estimates  including  stor- 
age have  been  made,  but  most  of  them  are  exceedingly  ex- 
travagant, and  none  of  them  is  based  upon  sufficiently  reliable 
data  to  warrant  unquestioned  acceptance.  .  .  . 

The  water-power  centers  of  the  country  are  the  Pacific  Coast 
and  intermountain  States,  the  New  England  States  and  New 
York,  the  Great  Lakes  Region,  and  the  States  entered  by  the 
Southern  Appalachian  Range.  Approximately  43  per  cent, 
of  the  total  estimated  minimum  power  of  the  country  is  found 
in  California,  Oregon,  and  Washington.  Adding  to  this  the 
power  in  Montana,  Wyoming,  and  Idaho  gives  60  per  cent, 
of  the  total  minimum  power  in  these  six  States. 

Power  demand.  The  total  installed  stationary  prime- 
moving  power  of  all  kinds  (steam,  gas,  and  water)  in  the 


WATER-POWER  DEVELOPMENT  267 

United  States  in  1905-1907  (the  latest  date  for  which  com- 
plete statistics  are  available)  was  approximately  23,000,000 
horse-power.  Of  this,  18,858,000  horse-power  or  82  per 
cent,  of  the  total,  was  generated  from  steam ;  3,423,000  horse- 
power, or  15  per  cent,  was  developed  from  water;  while 
631,000  horse-power  or  about  3  per  cent,  was  generated  from 
internal-combustion  engines.  It  will  be  seen,  therefore,  that 
only  about  one-seventh  of  the  total  power  demand  of  the  coun- 
try was  at  that  time  supplied  by  water.  It  seems  highly  prob- 
able that  the  rapid  development  of  water-power  since  1907 
has  increased  its  proportion  of  the  total  installed  prime-mov- 
ing power.  .  .  . 

Developed  water-power  in  the  U.  S.  [page  5].  There  is 
a  marked  geographical  concentration  of  developed  water-power 
(as  well  as  the  similar  concentration  of  potential  power  set 
forth  above).  Thus,  nearly  50  per  cent,  of  the  developed 
"commercial"  water-power  of  the  country  is  located  in  five 
States,  as  follows: 

Per  cent. 

California    ' -.-.-...  vr 14 

New  York 13 

Washington    10 

Pennsylvania    6 

South    Carolina 5 

Total    48 

An  even  more  marked  concentration  of  developed  water- 
power  employed  in  manufacturing  is  shown  by  the  following 
summary : 

Per  cent. 

New  York 30 

New  England   States 36 

Minnesota  and  Wisconsin 17 

South    Carolina 5 

Total    88 

Some  problems  of  water-power  development.  Certain 
physical  and  economic  facts  must  be  recognized  in  discussing 


268  WATER-POWER  DEVELOPMENT 

water-power  possibilities.  The  production  and  consumption 
of  power  are  simultaneous.  It  is  not  possible  practically  to 
store  overproduction  for  future  demands  when  production 
may  be  light.  The  three  principal  demands  for  power  are 
lighting,  traction,  and  manufacturing.  If  the  greatest  de- 
mand from  each  of  these  three  sources  came  at  a  different 
period  of  the  day,  the  total  would  be  so  distributed  as  greatly 
to  reduce  the  required  maximum  capacity  of  the  power  plant. 
As  a  matter  of  fact,  neither  of  these  demands  is  uniform,  while 
they  more  or  less  overlap.  Thus,  the  demand  for  power  for 
lighting  tends  to  reach  a  maximum  about  the  time  that  the  de- 
mand for  transportation  is  at  its  height.  This  overlapping 
creates  what  is  known  as  the  "peak  of  the  load/7  It  is  im- 
perative, therefore,  to  provide  sufficient  power  to  meet  this 
maximum  demand.  Aside  from  these  daily  fluctuations  in 
the  power  market,  there  is  also  a  seasonal  fluctuation.  The 
demand  in  winter  is  greater  than  in  summer.  The  daily 
fluctuation,  moreover,  is  greater  in  winter. 

In  addition  to  this  fluctuation  in  the  demand  there  is  also 
a  variation  in  the  supply  of  water-power  available.  This  is 
due  to  the  fluctuating  flow  of  streams.  The  flow  varies  ac- 
cording to  the  location  and  character  of  the  drainage  basin 
and  according  to  seasons,  and  the  seasons  themselves,  of 
course,  vary  in  different  years.  A  water-power  installation, 
therefore,  must  also  take  these  factors  into  account.  If  the 
installation  provides  only  for  utilizing  the  minimum  flow  there 
must  be  a  tremendous  waste  of  energy  during  the  period  of 
larger  flow.  On  the  other  hand,  as  already  stated,  it  is  im- 
practicable to  install  power  up  to  the  maximum  potentially 
available. 

Remedy  for  variations  in  supply  and  demand  for  power. 
The  problem  of  a  power  producer  is  to  meet  these  varying 
conditions  of  demand  and  supply  in  the  most  economical  way. 
There  are  several  means  contributing  to  this  end. 

The  physical  effect  of  irregularity  in  the  flow  of  the  streams 
can  be  partly  overcome  by  storage.  In  no  case,  however^ 


WATER-POWER  DEVELOPMENT  269 

can  storage  give  a  stream  anything  like  the  power  represented 
by  its  maximum  flow.  The  amount  of  storage  practicable  de- 
pends upon  the  topography  of  the  country  and  upon  the  value 
of  the  lands  overflowed.  Up  to  this  time  very  little  progress 
has  been  made  in  storage  development. 

Aside  from  storage,  it  is  possible  to  accomplish  something 
by  "pondage,"  that  is,  the  accumulation  of  water  from  day  to 
day  in  power-dam  ponds  during  that  portion  of  the  day  when 
the  demand  is  smallest. 

A  more  effective  remedy  is  in  "coupling  up,"  into  one  unit, 
two  or  more  sites  accessible  to  the  same  markets.  In  prac- 
tically all  cases  some  of  the  developments  can  cease  operations 
when  the  highest  demand  is  over  and  accumulate  pondage  to  be 
brought  into  use  at  the  period  of  highest  demand  the  next 
day.  In  the  meantime  the  other  sites  can  meet  the  diminished 
demand. 

The  variableness  of  power  supply  demand,  however,  cannot 
be  entirely  cured,  even  by  storage,  pondage,  and  "coupling." 
The  effective  remedy  is  the  use  of  auxiliary  steam  plants.  In 
nearly  all  cases  hydraulic  concerns  must  provide  sufficient 
steam  auxiliaries  to  meet  variations  not  otherwise  met. 

Advantages  of  unification  of  developments.  On  the  other 
hand,  if  a  power  site  or  a  group  of  power  sites  provides  more 
power  than  a  single  market  can  consume,  all  the  power  can  be 
utilized  by  "coupling  up"  two  or  more  markets. 

The  economic  advantages  gained  by  "coupling  up"  of  sites 
or  markets,  or  both,  by  means  of  transmission  lines,  obviously 
are  great.  It  is  apparent  that  the  most  efficient  use  of  water- 
power  from  an  economic  point  of  view  is  facilitated  by  thus 
gathering  into  a  single  unit  all  the  power  available  for  a 
given  market  or  a  group  of  markets,  using  the  same  system 
of  transmission  lines.  The  independent  operation  of  two  sites 
may  involve  a  great  waste  of  energy  and  capital.  In  fact,  in 
the  case  of  a  comparatively  small  water-power  at  a  long  dis- 
tance from  a  market  it  might  be  virtually  impossible  to  de- 
velop it  except  in  connection  with  some  other  site.  In  the 


270  WATER-POWER  DEVELOPMENT 

same  way,  in  the  case  of  storage,  there  is  an  advantage  in 
large-scale  operations.  This  is  because  water  gathered  in 
storage  reservoirs  contributes  to  every  power  site  below,  thus 
making  it  advantageous  to  control  all  the  sites  dependent  upon 
a  storage  project. 

Concentration  of  ownership  and  control.  From  the  above 
facts  it  is  clearly  seen  that  in  many  instances  local  concen- 
tration carries  with  it  great  economic  advantages.  .  .  . 

As  this  report  clearly  shows,  there  is  a  general  and  marked 
tendency  toward  concentration  in  the  control  of  water  power. 
Such  concentration  takes  two  forms.  One  is  the  single  owner- 
ship of  practically  all  the  power  in  a  given  locality  and  the 
other  is  the  ownership  of  water-power  in  scattered  localities 
by  a  single  interest.  The  two  are  often  found  together. 

Certain  forces  in  the  water-power  industry  tend  peculiarly 
toward  concentration.  The  unification  of  developments  and 
of  storage,  and  of  markets  as  well,  incident  to  the  highest 
efficiency  in  the  utilization  of  water-power,  as  just  described, 
clearly  tend  toward  concentration  of  control.  Concerns  un- 
dertaking the  development  of  water-power  tend  to  acquire 
all  available  power  in  a  given  community  because  of  the  ad- 
vantages of  unified  operation  above  outlined. 

Another  circumstance  leading  toward  concentration  of  con- 
trol is  the  fact  that  the  practical  limit  of  electric  trans- 
mission of  water-power  is  only  about  200  miles.  This,  it  will 
be  seen,  makes  it  virtually  impossible  for  a  water-power  con- 
cern in  one  part  of  the  country  to  compete  with  another  water- 
power  concern  in  a  distant  part  of  the  country.  Aside  from 
this  limitation  on  transmission  of  power,  moreover,  is  the  fact 
that,  as  a  rule,  the  total  demand  for  power  within  an  area 
of  practicable  transmission  is  almost  invariably  greater  than 
the  supply  of  water-power  alone.  The  Bureau's  investiga- 
tion shows  that  in  no  considerable  area  is  the  supply  of  power 
now  generated  from  water  sufficient  to  meet  the  total  power 
demand.  Owing  to  the  large  investment  required  to  develop 
a  water-power,  and  to  this  general  limitation  upon  the  supply^ 


WATER-POWER  DEVELOPMENT  271 

the  most  economical  utilization  of  such  power  frequently  re- 
sults in  concentrating  all  the  power  developed  within  a  given 
area  under  a  single  control. 

A  peculiar  circumstance  which  tends  to  accelerate  con- 
centration of  water-power  ownership  is  found  in  the  com- 
mercial customs  prevailing  among  manufacturers  of  machinery 
and  supplies  for  the  generation  of  electricity.  Such  manu- 
facturers, in  order  to  expand  their  business,  often  accept  the 
securities  of  hydroelectric  companies  in  payment,  at  least  in 
part,  for  machinery  and  supplies.  They  have  thus  been  led 
to  enter  actively  into  the  hydroelectric  field.  Since  the  manu- 
facture of  such  machinery  and  supplies  is  largely  concen- 
trated in  a  few  hands,  this  obviously  tends  toward  a 
corresponding  concentration  of  water-power  ownership. 

Again,  a  number  of  financial  houses  making  a  specialty  of 
financing  water-power  developments  have  become  interested  in 
water-powers,  and  this  has  created  another  class  of  controlling 
interests.  Furthermore,  many  officers  and  directors  of  equip- 
ment concerns  and  of  engineering  and  financial  houses  have 
become  individually  interested  in  the  same  water-power  de- 
velopments, thus  bringing  about  a  close  relationship  between 
the  two  interests. 

Still  again,  as  shown  later,  there  is  an  increasing  inter- 
relationship between  water-power  enterprises  and  public- 
service  interests. 

The  concentration  of  ownership  of  developed  water-power 
has  steadily  grown  until  in  any  given  community  it  is  usually 
all  under  a  single  control,  or  substantially  so.  Absolute  owner- 
ship of  all  the  power  in  a  locality  by  a  single  interest,  how- 
ever, is  not  necessary  to  establish  control.  If  one  concern  owns 
the  most  advantageous  sites,  and  has  a  strong  foothold  in  the 
markets,  it  has  a  dominating  position  in  that  area. 

Such  concentration  of  ownership  has  been  most  marked  in 
the  development  of  water-power  for  commercial  use.  There 
are,  however,  a  few  instances  of  marked  concentration  of  the 
ownership  of  water-power  used  in  manufacturing.  The  most 


272  .WATER-POWER  DEVELOPMENT 

noteworthy  instance  of  this  is  found  in  the  International  Paper 
Co.  ... 

Summary  of  ownership  and  control  by  interests  [page  27]. 
The  General  Electric  interests  control  the  water-power  situation 
in  large  portions  of  Washington,  Oregon,  Colorado,  Mon- 
tana, and  elsewhere.  The  Stone  and  Webster  interests  exer- 
cise control  (based  largely,  however,  on  management  rather 
than  ownership)  in  localities  in  Washington,  Iowa,  and 
Georgia.  The  Pacific  Gas  and  Electric  Co.  practically  dom- 
inates the  power  situation  in  a  large  number  of  localities 
in  the  northern  half  of  California.  The  Southern  Power 
Co.  controls  the  power  situation  in  South  Carolina  and  has 
a  strong  foothold  in  North  Carolina.  The  S.  Morgan  Smith 
interests  dominate  the  power  situation  in  the  vicinity  of  At- 
lanta, Ga.  The  Telluride  Power  Co.  controls  absolutely  a 
large  territory  in  Utah  and  Idaho.  The  Commonwealth 
Power,  Railway  and  Light  Co.,  which  is  a  part  of  the  Clark- 
Foote-Hodenpyl-Walbridge  interests,  dominates  the  power 
situation  in  the  Lower  Peninsula  of  Michigan.  The  Gould 
interests  control  the  best  of  the  available  water-power  sites  in 
the  vicinity  of  Richmond,  Va. 

Relations  of  water-power  companies  to  public-service  cor- 
porations. The  preceding  discussion  has  indicated  a  rather 
general  relationship  between  water-power  companies  and 
public-service  corporations.  This  common  control  of  the 
agencies  of  traffic  and  distribution  of  light  in  our  cities,  on 
the  one  hand,  and  the  sources  of  power  for  operating  them, 
on  the  other,  is  an  exceedingly  important  feature  of  water- 
power  development.  The  list  of  public-service  agencies  con- 
trolled by  or  affiliated  with  water-power  concerns  is  rapidly 
increasing.  Generally  the  relationship  between  water-power 
companies  and  public-service  corporations  is  that  of  owner- 
ship, but  there  are  cases  in  which  there  is  merely  affiliation 
through  common  officers  or  directors  or  the  sale  of  power. 

Some  idea  of  the  extent  of  such  common  control  of  public- 
service  corporations  by  water-power  companies  is  afforded  by; 


WATER-POWER  DEVELOPMENT  273 

the  fact  that  six  water-power  interests  control  street  railways 
in  29  cities  and  towns,  electric-lighting  plants  in  204,  and  gas 
plants  in  55.  .  .  . 

In  brief,  in  the  country  as  a  whole,  water-power  companies, 
or  companies  affiliated  with  them,  own  or  control  and  operate 
street  railways  in  no  less  than  111  cities  and  towns  in  the 
United  States,  electric  lighting  plants  in  669  cities  and  towns, 
and  gas  plants  in  113  cities  and  towns.  These  companies, 
moreover,  supply  power  to  municipal  lighting  plants  in  a  con- 
siderable number  of  cities  and  towns.  Many  of  these  are 
among  the  most  important  municipalities  in  the  States  in- 
volved. Furthermore,  in  many  cities  and  towns  in  the  United 
States  all  the  public  utilities — street  railways,  electric  light- 
ing and  gas  plants — are  controlled  by  water-power  interests. 

Interrelationship  of  large  interests  [page  29].  Beyond 
the  marked  concentration  of  ownership  already  set  forth, 
there  is  a  substantial  and  growing  interrelationship,  of 
greater  or  less  degree,  among  a  number  of  these  large  in- 
terests that  suggests  the  possibility,  if  not  the  probability,  of 
still  greater  concentration.  In  other  words,  not  only  is  there 
a  tendency  toward  control  of  public  utilities,  including  water- 
power,  by  large  combinations,  but  there  is  a  tendency  to- 
ward a  substantial  relationship  among  the  combinations  them- 
selves. This  relationship  is  established  in  various  ways.  In 
some  cases  one  interest  owns  stock  and  has  directors  in  a  water- 
power  company  that  is  managed  or  controlled  by  another 
interest ;  in  other  cases  there  are  directors  common  to  two  or 
more  interests  that  have  directors  in  a  third  company.  Again, 
a  relationship  is  sometimes  established  through  banking  houses. 
The  fact  that  an  individual  is  a  director  in  two  companies  does 
not  necessarily  point  to  a  close  relationship;  but  it  must  be 
admitted  that  it  tends  to  establish  a  bond  of  common  interest 
that  might  at  any  time  induce  and  facilitate  an  actual  con- 
solidation. .  .  . 

In  this  maze  of  interrelationships,  ranging  from  practically 
joint  control  down  to  personal  association  in  common  direc- 

18 


274  WATER-POWER  DEVELOPMENT 

torates,  is  clearly  revealed  the  drift  of  water-power  and  public- 
utility  corporations  under  the  control  of  a  few  very  powerful 
interests.  These  connections,  some  stronger  and  some  weaker, 
suggest  a  favorable  condition  for  a  very  small  number  of  men 
to  consolidate  very  large  interests  whenever  they  may  de- 
cide it  to  their  advantage  to  do  so.  This  interlocking  of  in- 
terests through  directors,  while  not  necessarily  indicating  a 
purpose  of  monopoly,  certainly  affords  an  incentive  and  a 
means  of  combination.  .  .  . 

The  best  development  of  the  resource  [page  31].  The 
utilization  of  water-power  directly  tends  to  conserve  the  fuel 
supply  of  the  country,  without  in  any  way  diminishing  the 
future  supply  of  water-power  itself,  since  water-power  is  not 
decreased  by  use.  The  power  now  (February,  1912)  required 
to  operate  the  industrial  enterprises  and  public-service  utili- 
ties of  the  country  (excluding  steam  railroads)  probably 
exceeds  30,000,000  horse-power.  Approximately  6,000,000 
horse-power  are  now  developed  by  water.  It  may  be  con- 
servatively estimated  that  this  represents  a  saving  of  at  least 
33,000,000  tons  of  coal  per  year.  It  is  certain  that  several 
additional  millions  of  horse-power  could  be  profitably  de- 
veloped from  water,  thus  affecting  a  still  further  conservation 
of  coal.  It  is  obvious,  therefore,  that  the  early  and  complete 
utilization  of  all  commercially  available  water-power  of  the 
country  should  be  encouraged  by  every  proper  means.  The 
real  waste  of  water-power  is  its  nonuse.  The  most  efficient 
utilization  of  such  power,  however,  tends  directly  toward 
concentration  of  control,  through  advantages  derived  from 
"coupling  up"  of  sites  and  markets,  unification  of  storage,  and 
relationships  with  public-service  corporations.  This  has  been 
already  brought  out.  The  problem,  therefore,  is  to  reconcile 
this  necessity  of  full  and  early  development  of  water-power 
with  the  proper  protection  of  the  public. 


THE  STANDARD  OF  LIFE 

[THIS  extract  from  The  Standard  of  Life  and  Other  Studies  by 
Mrs.  Bernard  Bosanquet,  New  York,  the  Macmillan  Co.,  1898,  is  re- 
printed by  permission  of  the  publishers.  It  is  taken  from  the  first 
part  of  the  first  essay,  which  gives  the  title  to  the  collection.] 

If  any  proof  were  wanted  of  how  ideas  may  mold  the 
lives  of  men  and  be  the  moving  spirit  of  their  progress, 
we  might  surely  find  it  in  this  deeply  significant  idea  of  the 
Standard  of  Life.  Around  it  center  most  of  our  industrial 
problems  of  to-day,  and  more  or  less  consciously  it  is  made  the 
base  for  all  the  forward  movements  of  the  working-class.  And 
like  all  living  ideas  it  is  incapable  of  exact  definition ;  in  other 
words,  its  significance  is  inexhaustible,  for  it  has  not  yet  be- 
come stereotyped  into  one  narrow  usage.  It  may  be  taken 
to  include  all  that  is  best  and  highest  in  human  life,  or  it 
may  be  narrowed  down  to  signify  nothing  more  than  the  satis- 
faction of  the  crudest  cravings  of  mankind;  and  its  very 
elasticity  gives  it  a  deeper  significance,  for  by  the  inter- 
pretation which  he  gives  to  it  you  may  most  surely  know  the 
man  for  what  he  is. 

But  though  we  cannot  define  the  idea,  we  can,  by  considering 
its  varying  usages,  and  the  part  which  it  plays  in  our  own 
thought  and  life,  form  some  estimate  of  its  importance,  and 
perhaps  lay  emphasis  on  elements  which  are  too  liable  to  be 
overlooked. 

In  the  first  place,  we  may  consider  in  what  sort  of  sense 
we  are  justified  in  speaking  of  a  standard  in  this  connection. 
Behind  the  fountains  and  lions  in  Trafalgar  Square  is  a  stone 
wall,  and  in  this  stone  wall  is  something  so  important  that 
it  is  hardly  ever  looked  at,  ...  certain  pieces  of  metal  let 
into  the  stone,  and  marking  off  lengths  which  are  named  as 

275 


276  THE  STANDARD  OF  LIFE 

inches,  feet,  yards,  and  furlongs.  This  is  the  standard  of 
measurement  by  which  is  determined  what  length  shall  be 
called  an  inch  or  a  foot,  and  beyond  which  there  is  no  appeal. 
Such  a  standard  is  an  absolute  necessity  as  one  of  the  funda- 
mental ideas  upon  which  civilized  intercourse  is  based;  with- 
out it  there  would  be  nothing  to  prevent  any  person  from 
having  his  own  idea  as  to  what  sort  of  length  a  yard  should 
be.  ... 

The  necessity  of  a  standard  is  not  confined  to  the  common- 
place facts  of  weighing  and  measuring.  The  tuning-fork  of 
the  singing  master  sets  a  standard  to  which  his  pupils  must 
conform,  and  without  which  he  would  himself  fall  into  uncer- 
tainty ;  while  in  the  Ten  Commandments  we  have  a  standard  of 
morality  which  has  served  the  human  race  for  countless  gen- 
erations. 

How  is  it  with  the  Standard  of  Life?  It  may  be  objected 
that  this  is  something  too  vague  and  indefinite  to  be  really 
analogous  to  these;  that  there  is  nowhere  any  definite  state- 
ment laid  down  to  which  we  can  appeal,  and  that  it  is  merely 
a  picturesque  way  of  saying  that  a  man  ought  not  to  live  like 
an  animal,  or  some  other  rhetorical  phrase  of  the  kind. 

It  is  true,  no  doubt,  that  many  of  us  do  not  know  where  to 
look  for  our  standard,  and  should  be  puzzled  if  suddenly  called 
upon  to  define  it.  But  this  is  partly  again  because  it  is  so 
important  a  matter  that  those  who  have  any  standard  at  all 
have  no  need  to  refer  elsewhere;  it  has  become  a  part  of 
their  very  lives,  and  consciously  or  unconsciously  they 
measure  their  every  action  by  it.  What  else  does  it  mean 
when  we  say,  "I  can't  live  in  that  street,  it  is  too  dirty  and 
disreputable/'  or,  "I  wouldn't  turn  out  a  piece  of  work  in 
that  disgraceful  state,"  or  "I  couldn't  bring  myself  to  such 
a  low  trick  as  that,"  or,  "I  'd  be  ashamed  to  let  my  chil- 
dren run  the  streets  in  that  condition"?  Or  when,  again, 
we  so  order  our  lives  that  the  ease  and  pleasure  in  them 
shall  not  become  disproportionate  to  the  amount  of  toil  and 
exertion  ?  We  are  simply  measuring  certain  facts  by  a  stand- 


THE  STANDARD  OF  LIFE  277. 

ard  which  we  have  within  us  of  decent  living,  good  work, 
honesty,  family  pride,  and  strenuousness ;  and  it  would  not  be 
difficult  for  any  thoughtful  man  to  make  clear  to  himself  just 
what  the  sort  of  life  was  which  he  had  taken  as  a  standard. 
And  he  would  then  find  that  just  so  far  as  he  fell  below  that 
standard  he  would  consider  his  life  unsatisfactory  and  a 
failure. 

The  great  difference  between  the  Standard  of  Life  and 
other  standards  seems  at  first  sight  to  be,  that  while  physical 
standards  are  the  same  for  all,  the  Standard  of  Life  varies 
for  each  of  us.  But  this  is  largely  only  appearance,  and  due 
to  our  narrow  way  of  regarding  the  standard.  When  we 
take  it  in  a  larger  sense,  we  begin  to  see  that  the  difficulty 
is  not  so  much  that  for  each  of  us  it  is  different,  but  that  for 
all  of  us  it  is  progressive. 

For  instance,  one  way  of  narrowing  the  idea  is  to  use  it 
as  if  it  could  be  expressed  in  money  terms  alone,  and  to  speak 
of  the  standard  of  any  class  as  represented  by  20s.,  30s.,  or 
40s.,  a  week,  as  the  case  may  be.  ... 

Another  way  of  simplifying  the  question  is  to  divide  the 
community  up  into  social  classes,  and  assign  a  different  stand- 
ard to  each  class;  and  for  this  view  there  is  a  certain  justi- 
fication if  we  look  rather  to  the  probable  origin  of  class 
distinctions  than  to  the  facts  as  they  stand  at  present.  For 
it  seems  likely  that  class  distinctions  have  their  origin  in 
differences  of  function,  and  that  our  Standard  of  Life  differs 
in  detail  according  to  the  particular  function  we  have  to 
fulfil  in  the  community.  In  other  words,  according  to  the 
occupations  which  they  follow  men's  standards  will  vary  in 
kind,  without  our  being  necessarily  able  to  say  that  this  or  the 
other  is  the  higher  or  lower.  If  for  the  present  we  leave  out 
of  sight  the  lowest  class  of  all,  the  Kesiduum  (which  is  the 
Residuum  just  because  it  is  made  up  of  men  and  women  who 
have  lost  their  standard),  then  we  shall  find  that  in  certain 
fundamental  respects  the  standard  is  the  same  for  all  Eng- 
lishmen to-day.  For  instance,  in  cleanliness,  morality,  and 


278  THE  STANDARD  OF  LIFE 

sufficiency  of  food,  we  differ  no  doubt  from  person  to  per- 
son; but  we  could  not  fairly  say  that  on  the  whole  it  is 
characteristic  of  any  one  class  to  be  cleanlier,  more  moral,  or 
to  eat  more  than  any  other.  But  as  soon  as  we  get  away 
from  these  elementary  facts,  great  divergences  begin  to  ap- 
pear, and  those  differences  begin  to  show  themselves  which 
seem  to  coincide  with  what  we  are  apt  to  call  class  distinc- 
tions. The  most  obvious  differences  between  classes,  those 
which  at  once  attract  the  attention  to  the  exclusion  of  un- 
derlying identities,  consist  in  their  different  standards  in  such 
matters  as  dress,  education,  housing,  and  recreation.  Certain 
classes  appear  to  attach  more  importance  to  these,  and  at  any 
rate  spend  much  more  money  upon  them;  and  we  incline, 
perhaps  somewhat  hastily,  to  assume  that  the  more  expensive 
standard  must  be  higher. 

The  attempt  to  understand  these  differences  in  the  standard 
brings  us  into  contact  with  some  of  the  most  perplexing  prob- 
lems of  sociology.  The  first  which  stares  us  in  the  face  is  one 
which  has  baffled  so  many  young  inquirers  that  it  may  fairly 
be  called  the  pans  asinorum  of  social  reform.  Why  are  there 
different  classes  in  the  community  ?  Why  do  we  not  all  belong 
to  one  class,  with  one  Standard  of  Life  and  equal  means  of 
attaining  it?  This  is  one  of  the  first  questions  we  begin 
to  ask  upon  emerging  from  the  sublime  indifference  of  child- 
hood to  all  social  arrangements,  and  one  which  nobody  seems 
prepared  to  answer  for  us.  Fortunately  for  our  present  pur- 
pose no  comprehensive  answer  is  needed;  it  will  be  sufficient 
to  note  briefly  one  or  two  of  the  considerations  involved  in 
our  social  inequalities. 

And  first,  as  to  the  connection  between  class  distinctions 
and  difference  of  social  function.  History  does  not  tell  us 
whether  there  was  ever  a  time  in  which  all  men  were  equal, 
but  we  do  seem  to  find  that,  broadly  speaking,  the  differentia- 
tion of  society  into  classes  has  followed  the  lines  of  its  dif- 
ferentiation into  different  functions  or  employments.  Leav- 
ing out  the  disturbing  influence  of  conquest,  we  see  that 


THE  STANDARD  OF  LIFE  279 

the  general  lines  of  division  between  classes  coincide  with 
the  general  lines  of  division  between  function  in  the  commun- 
ity. One  strong  instance  of  this  we  find  in  the  feudal  system, 
under  which  the  distinctions  between  classes  and  employ- 
ments were  strongly  marked,  and  which  is  defined  as  mean- 
ing "property  held  as  a  reward  or  in  consideration  of  special 
services/'  The  propertied  class  was  then,  theoretically  at 
least,  the  class  which  rendered  special  service  to  the  State; 
and,  speaking  broadly,  both  the  property  and  responsibility 
were  hereditary. 

Again,  it  is  worth  noticing  that  our  so-called  "middle 
class'7  is  a  comparatively  modern  growth,  and  corresponds  to 
a  development  of  the  professions  and  of  the  organizing 
branches  of  industry. 

But  the  most  marked  illustration  of  the  coincidence  of  class 
and  employment  is  to  be  seen  where  we  find  the  social  arrange- 
ment known  as  caste.  The  essence  of  caste,  apart  from  its 
religious  significance,  is,  that  certain  functions  are  committed 
to  certain  classes,  and  that  these  functions  are  to  a  greater 
or  less  extent  hereditary,  so  that  members  of  the  same  family 
continue  to  follow  the  same  occupation  from  generation  to 
generation. 

We  may  say  then,  that  in  the  past  at  any  rate  difference  of 
class  has  largely  depended  upon  difference  of  function  or 
employment. 

Now  if  we  could  find  a  society  in  which  every  one  followed 
the  same  employment,  and  in  which  there  was  also  no  dis- 
tinction of  classes,  we  should  have  a  striking  corroboration  of 
the  view  that  the  two  depend  upon  each  other.  A  society  with 
literally  no  difference  of  employment  would  perhaps  be  an 
impossibility,  but  we  get  as  near  to  it  as  we  can  in  the  modern 
state  of  Bulgaria.  The  people  of  Bulgaria  are  essentially  a 
race  of  peasant  proprietors,  and  form  a  society  which  is  almost 
homogeneous.  The  one  exceptional  class  is  that  of  the  State 
officials,  the  civil  service;  but  this  service  is  itself  recruited 
from  the  peasant  class  and  shares  its  characteristics.  With 


280  THE  STANDARD  OF  LIFE 

this  one  exception  there  seems  to  be  no  opening  whatever  for 
educated  people,  and  the  question  has  been  seriously  raised, 
whether  it  is  of  any  use  to  educate,  beyond  the  most  element- 
ary stage,  boys  who  have  nothing  before  them  but  the  career 
of  the  professional  politician  or  the  meager  life  of  the  peasant. 
"What  that  life  is  we  may  gather  from  .  .  .  Dicey 's  "The 
Peasant  State."  .  .  . 

It  seems  clear,  then,  that  without  going  so  far  as  to  say 
that  differences  of  employment  are  the  cause  of  class  distinc- 
tion, or  vice  versa,  we  are  safe  in  assuming  that  there  is  some 
close  connection  between  them,  and  that  a  society  which  lacks 
the  one  is  likely  to  be  deficient  in  the  other. 

Perhaps  the  most  important  characteristic  in  which  we 
differ  from  more  ancient  forms  of  society  lies  in  the  fact 
that  functions  and  employments  are  no  longer  hereditary  in 
any  strict  sense  of  the  term.  It  will  of  course  always  remain 
natural,  that  other  things  being  equal,  a  father  should  teach 
his  son  his  own  trade ;  and  thus  there  will  always  be  a  tendency 
for  families  to  continue  in  the  same  employment.  But  there 
is  no  longer  any  artificial  barrier  erected  by  tradition  and  cus- 
tom, and  it  is  possible  for  any  boy  on  leaving  school,  if  his 
intelligence  is  not  below  the  average,  to  choose  among  a  dozen 
different  occupations.  This  possibility  of  choice,  i.e.,  of 
adapting  the  occupation  of  the  boy  to  his  individual  disposi- 
tion and  capacity,  instead  of  forcing  him  into  the  same  groove 
as  his  ancestors,  is  of  the  utmost  importance.  Plato  laid  stress 
upon  it  in  his  conception  of  the  ideal  State,  which  was  to  be 
organized  as  a  system  of  classes,  based  upon  difference  of  func- 
tion, wherein  each  man  was  to  do  that  which  he  was  best 
fitted  by  nature  to  do. 

There  is  probably  no  way  in  which  it  can  be  ensured  beyond 
fail,  that  a  man  shall  do  what  he  is  best  fitted  to  do ;  some  spend 
their  lives  in  looking  for  their  vocation  and  die  without  find- 
ing it.  But  it  is  clear  that  all  will  have  a  better  chance  in  a 
complex  society  offering  many  different  openings,  than  in  a 


THE  STANDARD  OF  LIFE  281 

simpler  one  such  as  Bulgaria,  where  all  members  are  more  on 
a  level,  and  where  there  is  little  variety  offered.  We  find  a 
similar  contrast  between  developed  countries  with  fully  dif- 
ferentiated occupations,  and  new  countries  where  there  is  as 
yet  little  demand  for  anything  but  manual  labor.  In  the  latter 
there  is  no  career  for  the  weakly  or  intellectual;  those  whose 
nature  and  disposition  might  have  found  full  satisfaction,  are 
in  a  double  sense  "out  of  place''  in  a  primitive  society. 

And  together  with  this  opening  up  of  employments  to  all 
the  members  of  a  community  we  find  the  simultaneous  process 
going  on  of  the  breaking  down  of  class  barriers.  .  .  . 

This  means  of  course  an  immense  widening  to  the  scope  of 
ambition.  Professor  Cunningham  points  out  ("Growth  of 
English  Industry  and  Commerce,"  page  410)  that  the  old 
Burgess  society  "had  this  striking  characteristic,  that  the 
ordinary  object  of  ambition  was  not  so  much  that  of  rising  out 
of  one's  grade,  but  of  standing  well  in  that  grade;  the  citizen 
did  not  aim  at  being  a  knight,  but  at  being  warden  and  master 
of  his  guild,  or  alderman  and  mayor  of  his  town.  For  good  or 
evil  we  have  but  little  sympathy  with  these  humble  ambitions ; 
every  one  desires  to  rise  in  the  world  himself,  and  the  phil- 
anthropic construct  social  ladders  by  which  the  poorest  child 
may  rise  to  the  highest  ranks,  as  was  done  by  ecclesiastics  in 
the  Middle  Ages." 

That  this  breaking  down  of  artificial  barriers  must  in  the 
long  run  be  for  good,  we  can  hardly  doubt.  Man  is  naturally 
progressive,  both  in  his  wants  and  in  his  aspirations ;  and  by 
the  very  law  of  his  being,  must  always — if  only  left  to  himself 
— be  seeking  after  new  interests,  new  plans,  new  ambitions. 
But  if  no  interests  are  there,  if  the  means  to  carry  out  his  plans 
are  wanting,  if  his  ambitions  are  thwarted  and  held  in  check 
by  custom  and  tradition,  he  will  never  break  through  the  lower 
circle  of  desires  and  satisfactions,  which  we  share  with  the 
brutes,  and  progress  will  be  impossible. 

In  this  progressiveness  of  the  human  being  we  find  one  rea- 


282  THE  STANDARD  OF  LIFE 

son  for  those  differences  in  the  Standard  of  Life  which  we  are 
trying  to  understand.  Not  all  have  yet  worked  out  their 
freedom  from  the  lower  range  of  desires;  for  these,  satisfac- 
tion of  the  appetites  means  only  renewed  opportunity  for 
the  repeated  satisfaction  of  the  appetites.  Of  those  again  who 
have  set  their  hopes  on  pressing  forward,  who  see  before  them 
a  universe  of  desirable  things  to  be  mastered,  some  have  out- 
stripped others  and  lead  the  way.  In  their  advance  lies  the 
chief  hope  for  those  behind :  the  sight  of  better  things  attain- 
able is  the  chief  spur  to  men  to  raise  their  own  standard,  to 
seek  for  themselves  and  their  children  advantages  for  which 
they  would  otherwise  care  nothing. 

Another  reason  for  differences  in  the  standard,  and  one  still 
more  in  the  nature  of  things  than  the  former,  is  to  be  found 
in  the  different  conditions  under  which  varying  kinds  of  work 
must  be  carried  on.  The  scholar  eats  much  less  than  the 
artisan  who  goes  through  great  physical  exertion,  but  he  needs 
instead  greater  warmth  and  quiet;  just  as  their  tools  must 
always  be  different,  steel  and  iron  for  the  one  and  books  for 
the  other,  so  also  their  standards  must  differ  in  kind  as  regards 
the  surroundings  in  which  they  live.  That  one  or  the  other 
may  cost  more  in  terms  of  money  is  a  matter  of  accident,  and 
may  indeed  tell  hardly  upon  the  one  who  is  generally  supposed 
to  be  in  a  better  position.  The  young  clerk,  who  earns  no  more 
than  the  artisan,  but  must  wear  a  black  coat ;  and  the  gover- 
ness, whose  scanty  earnings  must  provide  evening  dress,  know 
well  enough  that  the  difference  in  the  standard  is  not  in  their 
favor ;  but  the  obligation  to  ' '  dress  according ' '  is  one  which  is 
fully  recognized  by  the  working-class,  and  will  always  be  ac- 
cepted as  a  reason  why  John  the  clerk  should  contribute  less 
to  the  family  expenses  than  Tom  the  carpenter. 

In  the  mere  fact,  then,  of  differences  of  standard,  apart 
from  accidental  accompaniments  of  which  we  may  hope  in 
time  to  free  ourselves,  we  have  both  the  condition  and  conse- 
quence of  vitality  and  progress  in  a  nation.  And  indeed  we 
find  that  what  really  practical  reformers  are  working  for  is 


THE  STANDARD  OF  LIFE  283 

not  to  bring  about  greater  uniformity,  but  to  get  rid  of  cer- 
tain definite  disadvantages  to  which  people  of  certain  classes 
or  occupations  are  subjected.  .  .  . 
To  sum  up  briefly : 

1.  Every  man  (above  the  lowest  residuum)  has  a  Standard 
of  Life,  by  which,  consciously  or  unconsciously,  he  orders  his 
life,  and  estimates  its  success  or  failure. 

2.  The  standard  in  England  of  to-day  is  the  same  for  all 
to  a  certain  extent,  and  in  certain  fundamental  but  less  ob- 
vious facts;  but  it  is  essentially  progressive,  and  in  more 
obvious  ways  it  varies  greatly  from  class  to  class,  and  accord- 
ing to  differences  of  occupation. 

3.  These  differences  do  not  involve  any  essential  incapacity 
on  the  part  of  any  class  to  raise  and  maintain  its  own  standard, 
and  therefore  every  class,  as  every  individual,  has  both  the 
right  and  the  duty  to  fix  its  standard  as  high  as  it  can  attain, 
there  being  no  limits  which  are  more  proper  for  on6  class  than 
another. 

4.  The  well-being,  moral  and  economical,  of  any  man  or 
class  will  be  for  the  most  part  determined  by  the  standard 
which  he  accepts,  and  for  this  reason  we  might  formulate  this 
practical  ideal  for  individuals :    That  every  man  should  aim  at 
giving  his  children  at  least  as  high  a  standard  as  his  own,  and 
as  good  an  opportunity  of  realizing  it.     And  that  this  is  not 
an  unnecessary  matter  to  urge,  may  be  witnessed  by  the  fact 
that  large  numbers  of  our  very  poor  are  unskilled  laborers 
whose  fathers  were  skilled  artisans. 


THE  INFLUENCE  OF  INCOME  ON  STANDARDS  OF 

LIFE 

[Ax  investigation  of  the  working  class  standard  of  living  in  New 
York  City,  undertaken  by  the  Sage  Foundation  and  by  the  New  York 
State  Conference  of  Charities  and  Correction,  was  carried  on  in  1907- 
08  under  the  direction  of  Robert  C.  Chapin,  professor  of  economics 
in  Beloit  College.  The  results  were  published  in  The  Standard  of 
Living  among  Workingmen's  Families  in  New  York  City,  by  R.  C. 
Chapin;  Russell  Sage  Foundation  Publications. 

A  summary  of  the  findings  comparing  them  with  data  from  other 
sources,  was  presented  by  Professor  Chapin,  Dec.  29,  1908,  at  a  meet- 
ing of  the  American  Economic  Association.  The  paper  is  divided  into 
two  parts:  I.  Variations  in  amount  of  income.  II.  Sources  of  in- 
come. These  extracts  comprise  most  of  the  first  part  of  this  paper. 
(Publications  of  the*  American  Economic  Association,  Third  Series, 
Vol.  X,  1909,  Papers  and  discussions  of  the  twenty-first  annual  meet- 
ing, pp.  181-188.)] 

Engel's  law.  Ernst  Engel  has  taught  us  to  look  at  the  ap- 
portionment of  income  among  the  principal  objects  of  family 
expenditure,  and  to  see  just  how  changes  of  income  work  out 
in  changes  in  the  elements  of  the  standard  of  living — what 
kinds  of  things  are  added  as  income  increases,  what  are 
omitted  as  income  falls.  On  the  basis  of  returns  from  199 
Belgian  families,  gathered  in  1855  by  Duxpetiaux,  Engel  made 
out  his  familiar  table  of  percentage  expenditures  for  Saxon 
families  of  three  income-grades.  He  found  that  the  poorest 
families,  whose  income  was  under  $300  of  our  money,  gave  for 
food  62  per  cent,  of  all  that  they  spent.  Families  having  from 
$450  to  $600  spent  55  per  cent,  for  food,  and  those  with  from 
$750  to  $1000  spent  50  per  cent,  for  this  purpose.  Hence  he 
made  his  generalizations  that,  as  income  increased,  a  less  and 
less  part  of  it  was  needed  for  food,  and  that  the  percentage  of 

284 


THE  INFLUENCE  OF  INCOME 

expenditure  for  food  was  therefore  an  index  of  the  degree  of 
prosperity  attained.  He  applied  this  standard  in  a  later 
work  to  the  wretched  English  peasants  whose  budgets  had  been 
collected  by  Eden  in  1797,  and  found  that  the  average  of 
their  food-expenditure  was  73  per  cent,  of  their  total  expendi- 
tures. 

Food  and  other  wants.  The  generalization  regarding  the 
tendency  of  the  food-percentage  to  diminish  as  the  income 
increases  has  been  verified  in  many  later  compilations  of 
family  budgets.  The  Keport  of  the  United  States  Bureau  of 
Labor  for  1903,  for  instance,  finds  a  decline  in  food-expendi- 
ture from  47  per  cent,  among  families  having  incomes  between 
$400  and  $500  to  40  per  cent,  for  families  with  incomes  be- 
tween $900  and  $1000.  Colonel  Wright's  Massachusetts  in- 
vestigation of  1875  showed  a  decline  of  64  per  cent,  for 
families  having  less  than  $450  a  year  to  51  per  cent,  for 
families  having  over  $1200  a  year. 

As  the  demands  of  the  stomach  are  more  easily  met  out  of 
the  larger  income,  what  expenditures  are  increased  to  corre- 
spond? Engel's  Saxon  tables  shows  a  constant  percentage  for 
housing  and  for  fuel  and  light,  a  slight  increase  for  clothing, 
and  a  rise  in  the  percentage  allotted  to  expenditures  outside  of 
immediate  physical  necessities  from  5  to  10  and  from  10  to 
15  per  cent,  as  we  ascend  the  income  scale.  This  indicates, 
that,  along  with  somewhat  better  provision  for  food  and 
shelter,  it  is  possible  for  the  family  to  indulge  in  more  at- 
tractive clothing  and  household  furnishings,  and  to  spend 
something  for  amusement,  for  reading  matter,  and  for  minor 
personal  indulgences. 

Relative  saturation  point.  All  reports  agree  as  to  the 
broadening  of  the  plane  of  living,  with  rising  income,  in  re- 
gard to  expenditure  for  the  satisfaction  of  these  culture 
wants.  Not  all,  however,  coincide  with  Engel's  data  in  re- 
gard to  a  constant  percentage  for  rent  and  for  clothing. 
Colonel  Wright's  figures  for  the  United  States  at  large  in  1901 
show  a  nearly  constant  percentage  for  rent  (17  to  18  per  cent), 


286  THE  INFLUENCE  OF  INCOME 

but  his  Massachusetts  report  of  1875  shows  a  decline  in  the 
first  three  income-groups  from  20  to  15.5  and  then  to  14  per 
cent.,  followed  by  a  rise  to  17  per  cent,  and  a  drop  to  15  per 
cent.  Recent  investigations  in  New  York,  that  of  Mrs.  More 
in  her  Workingmen's  Budgets,  and  that  of  the  Committee  of 
the  New  York  Conference,  agree  in  showing  a  steady  falling 
off  in  percentage  expenditure  for  rent  with  each  increase  of 
one  hundred  dollars  in  income.  The  percentages  found  in 
the  latter  inquiry  were  24  for  incomes  between  $600  and  $700, 
and  for  successive  income  groups,  rising  by  $100  stages,  22,  20, 
19,  18,  16 — the  last  for  incomes  over  $1100.  The  congestion 
of  population  in  New  York,  fortunately  exceptional,  doubt- 
less accounts  in  part  for  the  fact  that  in  that  city  house  rent 
claims  one-quarter  of  the  $600  incomes. 

An  examination  of  the  percentage  expended  for  food, 
housing,  and  other  purposes  suggests  that  the  proportion  of 
income  devoted  to  each  of  them  may  not  always  move  in  the 
same  direction  as  we  pass  from  one  income-group  to  the  next 
higher.  The  $400  families  in  the  Labor  Report  of  1903  spend 
a  higher  percentage  for  food  than  the  $300  families.  If  the 
comparison  is  carried  far  enough  upward  in  the  scale  of  in- 
comes, a  point  is  reached  in  New  York  where  rent  ceases  to 
fall  off  in  percentage  expenditure,  and  clothing  ceases  to  de- 
mand a  larger  proportion  than  in  the  group  preceding.  The 
fact  seems  to  be  that  each  of  the  three  primary  wants  takes 
its  turn  in  urging  its  claims  vociferously,  and  when  these  have 
been  pacified,  the  desires  for  the  things  that  make  life  worth 
living  begin  to  be  heard.  In  regard  to  each  class  of  wants  in 
turn  a  point  of  relative  saturation  is  reached,  and  a  more  ade- 
quate satisfaction  of  the  next  one  becomes  possible. 

Changing  ratio  for  housing.  In  New  York  City  the  most 
imperative  need  on  the  lowest  incomes  is  for  housing.  Some 
place  of  shelter  must  be  provided,  and,  however  wretched,  it 
will  not  be  cheap.  Thirteen  dollars  a  month  was  the  average 
rent  paid  by  seventy -two  families  whose  average  income  was 
$650.  But  this  amounts  to  $156  a  year,  or  24  per  cent,  of  the 


THE  INFLUENCE  OF  INCOME  287 

total  income.  When  the  cost  of  shelter  demands  a  quarter  of 
the  whole  income,  food  and  clothing  must  take  what  is  left. 
But  the  accommodations  obtained  as  the  minimum  that  can 
be  lived  in  by  the  families  with  $650  a  year  are  practically 
good  enough  for  those  with  an  income  one  and  two  hundred 
dollars  greater.  Seventy-three  families  whose  income  aver- 
aged $846,  spent  only  fourteen  dollars  a  week  on  the  average 
for  rent.  But  this  was  only  21  per  cent,  of  their  larger  total 
expenditure.  Meanwhile  their  food  percentage  was  practi- 
cally as  high  as  that  of  the  $650  group  (44.3  per  cent.),  repre- 
senting an  increase  in  average  amount  expended  from  $290  to 
$360. 

Changing  ratio  for  food.  In  food  the  point  of  diminishing 
percentage  was  not  reached  until  after  the  $1000  line  was 
passed.  The  food-percentage  increased,  as  with  the  families 
in  the  United  States  Labor  Keport  of  1903,  on  passing  from 
$400  to  $500,  and  from  $500  to  $600.  This  may  >e  due  in 
part  to  exaggeration  in  the  returns  of  expenditure  for  food. 
In  part  it  was  due  to  the  fact  that  until  an  increase  of  $800 
was  reached  one-third  of  the  families  were  underfed.  The 
proportion  of  the  total  food-expenditure  that  was  given  for 
animal  food  increased,  and  that  expended  for  cereal  food 
diminished.  The  cost  of  animal  food  comprised  29  per  cent, 
of  the  total  food  bill  of  the  families  in  the  $600  income- 
group,  and  32  per  cent,  of  those  in  the  $1000  group.  Cereals 
dropped  correspondingly  from  21  to  17  per  cent.  The  ex- 
penditure for  alcoholic  drinks  increased,  taking  into  account 
only  those  families  that  reported  this  item,  from  the  average 
of  $27.25,  or  4.2  per  cent,  of  the  total  expenditures  in  the 
$600  group,  to  $59.96,  or  5.2  per  cent.,  in  the  $1100  group. 

Clothing;  other  wants.  Clothing  comes  last  of  the  three 
to  a  constant  or  a  diminishing  proportion  of  the  expenditures. 
In  the  New  York  families  under  consideration  the  percentage 
expenditure  rises  slightly  with  each  increase  of  $100  in  in- 
come until  the  $1100  group  is  reached,  and  thereafter  remains 
constant  at  about  15  per  cent.  The  expenditures  for  other 


288  THE  INFLUENCE  OF  INCOME 

purposes  than  these  three  primary  necessities  are  kept  under 
until  these  wants  are  met.  By  the  time  something  like  an 
equilibrium  among  these  three  has  been  reached,  say  at  $800 
for  our  New  York  families,  the  expenditure  for  recreation,  so- 
cial obligations,  care  of  the  health,  and  all  other  purposes  save 
fuel  and  light,  claims  a  larger  proportion  of  the  income.  The 
proportion  is  1  per  cent,  higher  at  $700  than  at  $600,  but  at 
$800  it  rises  from  14  to  16  per  cent,  of  the  total  expenditure, 
and  continues  to  increase  without  sign  of  stopping.  That  is, 
the  culture-wants  are  beginning  to  claim  their  own,  which, 
under  the  necessity  of  keeping  the  wolf  from  the  door,  they 
could  not  be  permitted  to  have. 

A  striking  example  of  this  tendency  of  subsistence-wants  to 
claim  the  lion's  share  of  all  increasing  income  is  found  in 
Engel's  comparison  of  the  Belgian  returns  of  1853  with  those 
of  a  similar  investigation  made  in  1891.  At  the  latter  period, 
although  the  average  income  had  nearly  doubled,  the  expendi- 
ture for  food  comprised  65.7  per  cent,  of  the  total  in  1891  as 
compared  with  64.9  per  cent,  in  1853.  In  fact,  food,  clothing, 
rent,  and  fuel  and  light  consumed  96  per  cent,  of  the  income 
in  1891  and  only  94  per  cent,  in  1853. 

Minimum  standards  of  consumption.  The  same  general 
conclusion  as  to  the  relative  insistence  of  the  several  classes 
of  wants  may  be  drawn  from  another  method  of  handling  the 
New  York  returns.  A  minimum  standard,  as  exact  as  could 
be  determined,  was  applied  to  the  expenditures  for  food, 
clothing,  and  housing,  and  the  number  of  families  counted  in 
each  income  group  who  came  short  of  the  standard.  For 
food,  the  minimum  was  set  at  an  expenditure  at  the  rate  of 
22  cents  per  man  per  day,  as  calculated  after  the  manner 
made  familiar  by  W.  0.  Atwater  in  the  Bulletins  of  the  De- 
partment of  Agriculture.  This  figure  was  reached,  after 
an  analysis  of  one  hundred  of  the  family  reports,  by  Dr. 
Frank  P.  Underbill,  of  Yale  University,  a  competent  expert. 
Professor  Atwater 's  estimate  on  the  basis  of  data  gathered  in 


THE  INFLUENCE  OF  INCOME  280 

New  York  City  a  few  years  previous,  when  a  lower  scale  of 
prices  prevailed,  was  from  23  to  25  cents.  For  housing  the 
minimum  was  fixed  at  one  and  one-half  persons  per  room,  that 
is,  not  more  than  six  persons  to  four  rooms.  For  clothing  the 
minimum  was  set  at  an  allowance  of  $100  for  the  assumed 
family  of  five  persons,  expenditures  for  washing  being  in- 
cluded in  this  sum. 

For  our  present  purpose  the  accuracy  of  these  estimates  of 
a  minimum  requirement  for  physical  efficiency  does  not  con- 
cern us,  but  only  the  variations  in  the  departures  from  them 
that  appear  in  the  several  income-groups.  Measured  by  these 
standards,  of  the  families  with  incomes  between  $400  and 
$500  all  are  underfed,  88  per  cent,  are  underclad,  63  per  cent, 
are  overcrowded.  That  is,  the  want  of  shelter  is  being  satis- 
fied at  the  expense  of  food  and  clothing.  In  the  next  income- 
group  ($500-$600),  the  underfed  are  65  per  cent.^the  under- 
clothed,  as  before,  88  per  cent.,  the  overcrowdefd  71  per 
cent.  In  paying  more  attention  to  the  need  of  food,  less  at- 
tention is  paid  to  shelter.  A  higher  rental  is  paid,  but  more 
persons  are  crowded  into  the  accommodations  offered.  In 
the  next  income-group  ($600-$700)  the  underfed  have  fallen 
to  33  per  cent.,  the  underclad  to  63  per  cent.,  the  overcrowded 
to  57  per  cent.  For  every  income-group  thereafter,  the  over- 
crowded families  preponderate  over  both  the  other  classes. 
Even  in  the  $1100  income-group  21  per  cent,  are  overcrowded, 
but  none  underfed,  and  only  6  per  cent,  underclad.  These 
figures,  taken  as  a  whole,  imply  that  the  most  urgent  need  at 
the  minimum  income  is  for  shelter,  outclamoring  not  hunger 
perhaps,  but  at  least  the  want  of  adequate  food.  With  a 
larger  income  a  pause  can  be  set  to  the  desire  for  better  hous- 
ing, while  more  attention  is  given  to  the  providing  of  food. 
[With  an  income  still  larger,  of  $900  and  above,  the  deficien- 
cies in  diet  are  supplied,  and  at  $1000  the  minimum  allow- 
ance for  clothing  has  been  attained  by  practically  all  the 
families.  Not  even  at  this  point,  however,  does  the  desire  for 

U 


290  THE  INFLUENCE  OF  INCOME 

adequate  housing,  at  the  price  which  must  be  paid  for  it,  suf- 
fice to  persuade  more  than  three-fourths  of  the  families  to  go 
without  enough  of  other  things  to  secure  it. 

Saving.  Another  alternative  to  expansion  of  expenditures, 
for  whatever  purpose,  as  income  increases,  is  saving.  Saving 
becomes  easier  as  income  increases.  But  the  point  where 
savings  begin  is  not  necessarily  the  point  where  a  standard 
even  of  physical  efficiency  is  attained.  There  are  families 
that  save  at  the  expense  not  only  of  comfort,  but  even  of 
health,  and  there  are  families  that  no  increase  of  income  would 
induce  to  save.  Of  the  underfed  families  just  alluded  to, 
one-half  reported  a  surplus  of  income  over  expenditure  of  at 
least  $25;  65  per  cent,  of  the  families  reckoned  as  under- 
clothed,  and  44  per  cent,  of  the  overcrowded  likewise  reported 
such  a  surplus.  "When  this  is  compared  with  the  percentage 
of  all  families  that  reported  a  surplus,  namely  36.5,  it  seems 
fair  to  infer  that  the  desire  to  save  represses  expenditures  to 
meet  actual  physical  necessities. 

On  the  other  hand,  by  no  means  all  families  on  a  larger  in- 
come preferred  saving  to  spending.  Not  until  $1300  is 
reached  is  there  a  constant  increase  in  the  number  of 
families  that  report  a  surplus  of  income  over  expenditures. 
This  indicates  that  there  are  Micawbers  on  large  incomes  as 
there  are  misers  on  small  incomes,  but  also  that  the  social 
influences  of  New  York  City,  at  least,  encourage  adding  to 
the  good  things  included  in  standards  of  living  quite  as  much 
as  they  encourage  saving.  The  proportion  of  savers  among 
the  Russian  and  Italian  families  was  found  to  be  much  higher 
than  among  families  of  more  thoroughly  Americanized  stock. 

Conclusions.  On  the  whole  the  conclusions  drawn  from  the 
New  York  investigation  substantiate  the  restatement  of 
Engel's  "laws"  given  by  Stephen  Bauer  in  his  article 
"Konsumtionsbudget"  in  Conrad's  Handworterbuch,  as  fol- 
lows: 

With  increase  of  income: 


THE  INFLUENCE  OF  INCOME 


291 


1.  The  proportion  spent  for  food,  especially  for  vegetable 
food,  falls. 

2.  The  proportion  saved  constantly  increases. 

3.  The  proportion  spent  for  housing,  fuel,  light,  falls  until 
a  certain  income  is  reached,  then  remains  constant  or  in- 
creases. 

4.  The  proportion  spent  for  animal  food,  drink,  clothing, 
culture,    and    recreation    rises    until    a    certain    income    is 
reached,  then  remains  constant  or  falls. 


ECONOMIC  CAUSES  AS  AFFECTING  THE  POLITICAL 
HISTORY  OF  THE  UNITED  STATES 

[Air  address  with  this  title  was  given  by  W.  M.  Daniels,  then  pro- 
feesor  of  political  economy  in  Princeton  University,  before  the  Scottish 
Society  of  Economists  in  1906,  and  printed  in  The  Accountants'  Mag- 
azine, for  May,  1907.  It  is  here  somewhat  abbreviated  and  edited, 
with  the  approval  of  the  author.] 

Before  1820  the  custom  had  grown  up  for  British  travelers 
to  the  United  States  to  make  a  book  out  of  their  transat- 
lantic impressions.  Despite  their  curiously  varied  verdicts, 
there  was  one  aspect  of  contemporary  life  upon  which  they 
were  in  singular  accord.  This  was  the  all-important  in- 
fluence exerted  by  an  almost  boundless  unoccupied  domain 
beyond  the  line  of  actual  settlement.  The  vivacious  Miss 
Martineau,  in  her  "Travels  in  America,'*  published  in  1837, 
has  recorded  that  "the  possession  of  land  is  the  aim  of  all 
action,  generally  speaking,  and  the  cure  for  all  social  ills 
among  men  in  the  United  States.  If  a  man  is  disappointed 
in  politics  or  love,  he  goes  and  buys  land.  If  he  disgraces 
himself,  he  betakes  himself  to  a  lot  in  the  West.  If  the  de- 
mand for  any  article  slackens,  the  operatives  drop  into  the 
unsettled  lands.  If  a  citizen's  neighbors  rise  above  him  in 
the  towns,  he  betakes  himself  where  he  can  be  monarch  of  all 
he  surveys.  An  artisan  works  that  he  may  die  on  land  of  his 
own.  He  is  frugal  that  he  may  enable  his  son  to  be  a  land- 
owner. ' ' 

Miss  Martineau  and  her  colleagues  were  quite  correct  in 
their  insistence  upon  the  dominant  role  that  an  imperial 
abundance  of  unoccupied  territory  was  to  play.  The  first 
period  of  our  national  development,  economic  and  political, 
corresponded  roughly  with  the  duration  of  a  free  public 

292 


ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY      293 

domain,  which  challenged  the  pioneer  and  settler  to  the  further 
conquest  of  physical  nature.  The  second  period  began  about 
1880  with  the  exhaustion  of  our  free  lands  and  the  vanish- 
ing of  the  frontier.  The  first  era  was  one  of  expansion  and 
settlement;  the  second,  in  which  we  still  live,  is  one  of  re- 
adjustment and  recoil. 

In  treating  of  the  economic  causes  which  have  affected  the 
political  history  of  the  United  States,  I  shall  speak  first  of  the 
manner  in  which  free  land  reacted  upon  our  constitutional 
system;  second,  of  the  clash  of  slavery  and  free  labor;  and 
lastly,  of  the  power  of  concentrated  financial  control. 

I.  Free  land  and  democracy.  The  process  of  westward 
expansion  and  settlement  has  too  often  been  described  in  its 
external  aspect,  in  the  baldness  of  its  objective  statistical  de- 
tail. But  without  some  apprehension  of  the  economic  society 
which  that  expansion  into  new  lands  called  for  a  time  into  be- 
ing, the  most  thorough-going  political  transformation  in  our 
history  cannot  be  grasped. 

The  notion  may  be  dismissed  at  the  outset  that  the  winning 
of  the  Western  wilderness  was  largely  an  automatic  process, 
due  merely  to  the  growth  and  spread  of  population  into  va- 
cant, contiguous  territory.  The  instinct  for  successful  mi- 
gration and  colonization  is  a  rare  endowment,  found  only 
among  a  few  peoples,  and  exercised  by  them  only  inter- 
mittently. 

'  *  The  tide  of  Anglo-Saxon  settlement  was  for  two  centuries 
held  in  by  mountains  near  the  Atlantic  shore-line,  and  then 
swept  to  the  base  of  the  Eocky  Mountains  in  much  less  than 
half  that  period/'  Not  until  the  tenuous  girdle  of  French 
trading-posts  along  the  great  lakes  and  the  Mississippi  was 
snapped,  did  the  pent-up  spirit  of  colonization  find  a  second 
outlet. 

How  very  imperfectly  this  westward  trend  of  settlement 
was  then  grasped,  even  in  the  United  States,  may  be  gathered 
from  the  locating  in  1790  of  Washington,  the  national 
capital,  at  what  is  practically  the  middle  of  the  Atlantic  sea- 


294      ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY 

board.  Supposed  originally  to  be  centrally  situated  for  all 
time  to  come,  it  is  to-day  hundreds  of  miles  from  the  center  of 
population,  and  three  thousand  miles  from  the  States  on  the 
Northern  Pacific.  Since  1800  the  center  of  population  has 
moved  regularly  with  each  decade  towards  the  west,  in  some 
decennial  periods  as  much  as  eighty  miles,  and  rather  curi- 
ously has  always  closely  hugged  the  39th  parallel  of  north 
latitude.  The  lure  of  free  land  has  been  the  steady  magnet, 
while  industrial  depression  in  the  East  has  by  a  process  of 
repulsion  occasionally  reinforced  the  steady  pull  westward. 

The  founders  of  the  new  Western  States  were  from  the 
native  Eastern  stock,  but  sifted  out  of  it  by  a  self -chosen 
career  of  adventure  in  confronting  and  vanquishing  primeval 
nature. 

The  pioneer  class  could  not  be  recruited  from  an  exploited 
fringe  of  an  early  proletariat,  or  from  raw  immigrants.  De 
Tocqueville  had  noticed  in  1835  that  immigrants  to  America 
did  not  push  west,  and  had  explained  that  "the  desert  cannot 
be  explored  without  capital  or  credit,  and  the  body  must  be 
accustomed  to  the  rigors  of  a  new  climate  before  it  can  be 
exposed  to  the  chances  of  forest  life."  In  later  decades  free 
transportation  has  often  been  furnished  to  induce  the  immi- 
grant to  locate  at  a  distance  from  his  port  of  entry.  But 
the  pioneer  was  seldom  an  immigrant,  and  the  early  settler 
was  seldom  a  peasant.  "Everything  about  him,"  testifies 
De  Tocqueville,  "is  primitive  and  unformed,  but  he  is  him- 
self the  result  of  the  labor  and  the  experience  of  eighteen 
centuries.  He  wears  the  dress  and  speaks  the  language  of 
cities,  and  penetrates  into  the  wilds  of  the  New  World  with 
the  Bible,  an  ax,  and  a  file  of  newspapers." 

I  have  dwelt  upon  the  origin  and  character  of  the  early 
Western  settlers  because  it  was  the  central  West  that  was 
destined  to  transform  the  political  habit  of  the  United  States. 
That  influence,  however,  we  shall  seek  in  vain  in  the  shifting 
ebb  and  flow  of  early  political  conflicts.  The  fairly  whim- 
sical way  in  which  not  only  the  West  but  the  other  sections, 


ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY      295 

New  England  and  the  South,  shifted  their  political  pref- 
erences until  slavery  had  become  the  one  imperious  issue 
reminds  one  of  Talleyrand's  cynical  remark,  that  a  man  who 
aims  to  be  true  to  his  party  must  be  ready  for  frequent 
change  of  his  principles. 

But  while  no  decipherable  progress  can  be  conjured  out  of 
alternating  party  triumphs  in  the  central  West,  the  unprec- 
edented economic  opportunities  long  enjoyed  by  all  the  in- 
habitants of  the  new  commonwealths  in  approximate  equality 
were  destined  to  transform  the  whole  political  fabric.  The 
abundance  and  fertility  of  the  soil  yielded  to  the  unflagging 
energy  of  the  new  settlers  a  crude  but  very  bountiful  subsist- 
ence. The  hired  laborer  was  able  to  wrest  from  his  Employer 
a  wage  commensurate  with  that  which  the  worker  could  com- 
mand for  himself  by  resorting  to  fertile  and  unappropriated 
land.  The  standard  of  wages  and  of  comfort  was  high,  and 
divergences  in  incomes  and  even  in  possessions  were  small  and 
unimportant.  From  this  fundamental  economic  equality 
there  resulted  in  these  frontier  communities,  unused  to  social 
distinctions,  and  untrained  in  the  notion  of  class  subordina- 
tion, a  fierce  equalitarian  spirit  which  found  its  earliest  ex- 
pression in  their  local  politics.  "Every  age,"  says  Burke, 
"has  its  own  manners  and  its  politics  dependent  upon  them." 
The  manners  and  customs  of  the  early  West  were  the  prod- 
uct of  approximately  equal  earnings  and  possessions.  These 
first  found  expression  politically,  in  the  newer  States,  in  man- 
hood suffrage  (negroes  alone  excepted),  and  in  the  practice  of 
making  almost  all  official  positions  elective,  with  a  short,  fixed 
term  of  service.  By  contagion  these  forces  were  destined  to 
invade  the  older  States,  and  eventually  to  prevail  throughout 
the  Union.  It  was  through  these  innovations  that  a  serious 
dislocation  of  the  older  constitutional  system  was  to  be  ef- 
fected. .  .  . 

In  all  of  the  older  States  the  suffrage  was  hedged  about  by 
limitations — ecclesiastical,  residential,  and  pecuniary.  .  .  . 
Eligibility  to  office  was  still  more  narrowly  guarded.  The 


296      ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY 

property  qualifications  restricted  office-bearing  practically  to 
the  local  notables  or  gentry.  .  .  . 

This  entire  regime  of  a  restricted  suffrage,  of  class  control, 
of  appointive  offices  obtainable  only  through  interest,  and  of 
permanent  incumbency  of  such  positions,  was  alien  to  the 
spirit  of  the  new  West.  Economic  equality  to  the  new  States 
had  been  translated  into  radical  political  equality.  To  the  in- 
dustrial opportunities  which  that  section  afforded  were  now 
added  the  proffer  of  wider  political  rights  and  opportunities 
than  were  enjoyed  in  the  East.  Partly  by  a  process  of  po- 
litical infection,  many  of  the  older  States  began  to  reshape 
their  franchise  on  more  liberal  lines.  The  center  of  political 
gravity  was  thus  being  continually  shifted  within  the  older 
States;  and  by  1824  the  new  electorate  had  become  conscious 
of  its  power  in  the  arena  of  national  politics.  The  Congres- 
sional Caucus  which  had  named  the  succession  to  the  presi- 
dency for  half  a  century  fell  into  abeyance  as  the  new  device 
of  nominating  conventions  was  launched.  These  nominating 
conventions  were  composed  of  delegates  from  the  various  lo- 
calities, chosen  by  popular  voice.  They  now  named  candi- 
dates for  the  presidency  as  they  had  previously  done  for  other 
State  and  local  offices.  No  sooner  had  the  nominating  con- 
vention system  been  established  than  virtue  departed  from  the 
Electoral  College.  Thenceforth  its  members  ceased  to  exer- 
cise any  deliberative  or  independent  volition,  and  simply 
registered  the  presidential  choice  of  the  party  which  had 
elected  them.  Thus  the  election  of  the  president  was  finally 
made  dependent  upon  the  popular  vote;  and  with  a  repre- 
sentative hero  in  the  person  of  Jackson,  the  new  democracy  in 
1828  forced  the  doors  of  the  old  regime,  and  "the  political 
control  of  the  gentry,  which  the  Constitution  framers  had 
counted  on  as  perpetual, ' '  passed  forever  away.  The  charac- 
ter of  the  presidential  office  became  radically  changed.  From 
being  an  embodiment  of  executive  prerogative,  independent  of 
popular  choice,  it  became  an  elective  kingship ;  and  where  the 
incumbent  is  himself  a  forceful  character,  like  Jackson,  or 


ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY      297 

Lincoln,  he  wields  the  immense  powers  of  tribunative  au- 
thority. 

It  cannot  in  fairness  be  denied  that  this  transformation  of 
our  constitutional  system  had  likewise  a  very  seamy  side. 
The  spoils  system  which  had  already  infected  local  politics 
was  now  introduced  into  national  politics,  and  wholesale  pro- 
scriptions of  office-holders  became  the  rule  when  the  opposi- 
tion party  came  into  power.  The  envious  traits  of  democracy 
were  so  played  upon,  that  the  possession  of  even  moderate 
wealth  became  a  positive  obstacle  to  a  political  career. 
Moreover,  in  its  haste  to  take  the  government  out  of ^  private 
hands,  and  to  subjugate  the  old  hereditary  bureaucracy,  the 
new  democracy  had  created  a  vast  multitude  of  elective  of- 
fices with  short  official  terms;  and  some  enginery  was  neces- 
sary to  organize  the  frequent  nominating  conventions,  and  to 
manage  the  complicated  business  of  frequent  elections.  As  a 
result,  a  new  set  of  party  managers,  a  sort  of  outside  unofficial 
magistracy, — the  so-called  Machine,  a  body  unknown  to  the 
law,  and  subsisting  originally  on  the  spoils  of  offices, — became 
a  permanent  fixture.  Thus  the  original  economic  equality  in 
the  new  West  had  transformed  the  older  constitutional  system 
of  class  rule  into  one  based  practically  on  universal  suffrage. 
It  had  made  the  political  organization  or  Machine  national  in 
its  extent  of  power.  It  had  made  the  president  a  popular 
tribune;  but  it  had  dislodged  an  enormous  mass  of  social 
debris, — a  result  which  is  often  the  price  that  must,  tem- 
porarily at  least,  be  paid  even  for  a  peaceful  revolution. 

II.  Slavery  and  free  labor.  In  the  original  Southern 
States,  and  in  the  new  States  to  the  south  of 'the  Ohio  Kiver, 
economic  life  and  development  had  been  profoundly  modified 
by  negro  slavery.  In  earlier  colonial  times  slavery  had  pre- 
vailed in  all  the  colonies;  but  the  negro  cannot  thrive  in  the 
rigorous  climate  of  the  farther  North,  and  has  always  been 
numerically  a  negligible  element  in  its  population.  For  in- 
tensive farming,  as  for  mechanical  labor,  requiring  skill,  the 
negro  had  been  found  to  be  a  costly  laborer.  These  causes, 


298      ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY 

reinforced  by  humanitarian  views,  led  to  the  early  and  easy 
abolition  of  slavery  in  the  North.  In  the  South,  conditions, 
both  climatic  and  economic,  were  different.  The  black  could 
and  did  increase  and  multiply  in  that  region.  The  cultiva- 
tion of  tobacco  on  the  seaboard  by  negro  labor  was  at  the  out- 
set immensely  profitable,  the  negro's  lack  of  skill  being  offset 
by  the  unparalleled  richness  of  the  soil  and  by  the  wasteful 
system  of  soil-exhaustion.  But  as  this  process  of  earth- 
butchery  about  reached  its  limit,  it  seemed  for  a  time  likely 
that  economic  causes  would  cooperate  with  the  humanitarian 
sentiment,  originally  very  prevalent  amongst  the  Southern 
gentry,  against  the  slave  system.  At  the  same  time,  the 
numerous  negro  population  of  the  South  rendered  extrication 
from  the  impasse  difficult  in  the  extreme.  Removed  often  by 
only  a  generation  from  primitive  African  savagery,  they  were 
clearly  untrained  for  self-rule  or  for  immediate  political 
equality  with  the  whites.  Slavery  with  all  its  drawbacks  was 
essentially  a  system  of  government,  and  an  effective  alternative 
which  would  have  afforded  security  to  the  whites  and  subsist- 
ence to  the  negro  seemed  practically  unattainable.  It  ap- 
peared for  a  time  not  impossible  that  the  moribund  system 
might  develop  into  the  mild  patriarchal  rule  of  a  primitive 
agricultural  state.  But  the  invention  of  the  cotton-gin  in 
1793  gave  slavery  a  new  and  undreamed-of  lease  of  life. 
Hitherto  only  cotton  of  the  long  staple  had  been  grown,  and 
that  only  in  the  tide-water  sections.  The  cotton-gin  made 
profitable  the  cultivation  of  the  short-staple  variety,  and 
opened  the  vast  unoccupied  upland  of  the  South  to  cotton 
culture.  The  planter  with  his  gang  of  slaves  penetrated  the 
Southern  wilderness,  moving  in  parallels  to  the  white  pioneer 
and  settler  on  the  North  and  West.  The  early  economic  com- 
plexion of  the  South  was  thus  irretrievably  fixed  by  slavery. 
Free  labor  would  not  betake  itself  to  a  section  where  slavery 
had  stamped  an  odium  on  manual  toil,  and  the  subsequent 
stream  of  European  immigration  left  the  South  untouched. 
The  two  westward  currents  finally  converged  in  the  border 


ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY      299 

States  of  the  West,  and  first  in  Kansas  the  free  settlers  and  the 
slave-owners  contended  for  the  territory  in  question.  The 
contest  grew  until  it  involved  the  nation  in  civil  war;  and 
eventually  the  arbitrament  of  war  swept  slavery  away  alto- 
gether. The  ultimate  economic  result  of  the  war  upon  the 
South,  impoverished  and  exhausted  by  the  struggle,  was  re- 
generative. The  deeps  of  its  industrial  stagnation  were 
stirred,  and  its  isolated  homogeneity  was  destroyed.  Manu- 
factures and  commerce  have  invaded  its  territory  and  diversi- 
fied its  occupations,  so  that  eventually  its  economic  structure 
will  conform  closely  to  that  of  the  other  sections  of  the  nation. 
It  is  true  that  the  legacy  of  slavery  still  persists  in  the  South 
in  the  shape  of  sharp  race  antagonism.  What  the  outcome  of 
that  situation  will  be  no  one  can  say.  Racial  amalgamation 
is  so  improbable,  and,  if  possible,  so  incredibly  distant,  that 
the  hypothesis  may  be  dismissed  as  beyond  the  scope  of  present 
inquiry.  Political  equality  was  conferred  on  the  negro  by 
amendments  to  the  Federal  Constitution,  but  its  denial  in 
practice  only  indicates  that,  as  a  solution  of  the  race  question, 
it  was  an  untimely  step.  There  is  unfortunately  not  very 
much  to  be  anticipated  from  the  speedy  growth  of  the  black 
in  wealth;  for  while  a  few  negroes  have  prospered  individu- 
ally, the  race  as  a  whole  has  hardly  shown  aptitude  sufficient 
to  warrant  belief  in  its  power  as  a  permanent  competitor  with 
the  white  in  many  occupations.  Even  in  cotton-planting,  the 
recent  Italian  immigrant  is,  in  some  sections,  ousting  the 
negro  tenant-farmer  from  the  land.  The  most  that  a  sane 
optimism  can  reasonably  hope  is,  that  a  remnant  may  be 
trained  so  as  to  hold  their  own  as  small  cultivators,  artisans, 
and  servants,  and  that  white  immigration  to  the  South  may 
very  appreciably  lessen  the  relative  proportion  of  the  blacks  to 
the  entire  population.  Recent  censuses  give  some  consider- 
able color  to  this  latter  contingency.  If  the  negro  individu- 
ally shows  remarkable  talent,  recognition  of  his  achievement 
is  bound  to  follow,  and  it  would  be  wrong  as  well  as  impos- 
sible in  the  long-run  to  withhold  it.  But  the  deep-seated  ra- 


300      ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY 

cial  antipathy  that  so  often  leads  a  white  mob  of  the  South, 
incensed  at  negro  brutality,  to  acts  of  inhumanity  that  make 
civilization  a  mockery,  is  only  an  index  of  the  cancerous  na- 
ture of  the  race  problem  in  our  Southern  States. 

III.  Capitalistic  consolidation  and  class  antagonism.  At 
the  close  of  the  Civil  War,  in  1865,  the  remaining  free  public 
lands  of  the  West  greatly  facilitated  the  disbanding  of  the 
Northern  army.  But  a  decade  later,  by  the  time  that  the 
Southern  States  were  again  represented  in  Congress,  and 
the  war's  results  had  been  embodied  in  constitutional  amend- 
ments, the  available  land  of  the  West  was  practically  ex- 
hausted, and  the  frontier  of  settlement  had  disappeared. 
New  public  issues  of  a  progressively  economic  character 
emerged,  and  were  to  be  canvassed  often  with  rancor,  now  that 
free  lands  served  no  longer  as  an  absorbent  of  social  discon- 
tent. 

It  was  the  beginning  of  a  period  of  recoil  and  readjust- 
ment. Population  was  losing  some  of  its  fluidity,  and  friction 
was  developing.  The  center  of  population  was  no  longer 
shifted  rapidly  towards  the  Pacific,  moving  tardily  in  the  last 
census  decade  (1890-1900)  only  fourteen  miles  to  the  west- 
ward. Tendencies  that  heralded  the  approaching  industrial 
maturity  of  the  country  multiplied.  The  urban  population 
gained  steadily  on  that  of  the  rural  districts,  and  by  1900 
towns  of  8000  or  over  contained  fully  one-third  of  all  the 
inhabitants.  The  first  manifestation  of  unrest  centered  about 
financial  and  monetary  heresies,  such  as  the  agitation  for  the 
permanent  inflation  of  the  currency;  and  the  agrarian  com- 
munities of  the  newer  sections  rallied  to  the  support  of  this 
and  kindred  proposals.  The  so-called  Granger  or  anti-rail- 
road legislation,  prevalent  in  the  same  section,  was  an  index  of 
a  newly  awakened  hostility  to  the  rapidly  growing  transporta- 
tion interest.  By  1880  the  phenomenon  of  industrial  con- 
solidation began  to  attract  attention.  In  cotton,  woolen,  and 
iron  manufactures,  the  number  of  plants  either  diminished 
absolutely  from  decade  to  decade,  or  showed  an  inconsiderable 


ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY     301 

increase  by  no  means  proportionate  to  the  growth  of  popula- 
tion. Concurrently  with  this  check  in  the  increase  of  the 
number  of  establishments,  the  average  capital  investment,  the 
annual  output  per  plant,  and  the  average  number  of  em- 
ployees per  factory,  grew  prodigiously.  The  dearth  of  profits 
which  vigorous  competition  had  brought  about  had  given  rise 
to  attempts  at  consolidation  in  certain  industries;  and  the 
virtual  monopoly  of  refining  sugar  and  petroleum,  originally 
under  the  trust  form  of  organization,  was  evident  as  early  as 
1880.  Both  the  organization  of  industry  upon  a  grand  scale, 
and  the  ampler  means  at  the  disposal  of  master  manufacturers, 
quickened  the  pace  and  multiplied  the  economies  of  produc- 
tion. 

On  the  other  hand,  labor  associations  after  the  Civil  War 
grew  in  number,  and  took  on  a  radically  different  character. 
Instead  of  transitory  quasi-social  guilds  of  local  craftsmen, 
they  became  permanent  unions,  militant  in  aim,  and  con- 
federated with  hundreds  of  similar  organizations  pursuing  a 
common  purpose.  Beginning  first  in  1877,  strikes  of  such 
magnitude  and  violence  occurred  as  to  simulate  territorial  in- 
surrections and  to  require  the  intervention  of  the  Federal 
army. 

The  legislative  mill  began  to  grind  out  statutes  of  a  signifi- 
cant and  far-reaching  economic  purport.  In  Congress  the 
Chinese  Exclusion  Act  came  in  1882.  The  law  prohibiting 
the  importation  of  laborers  under  contract  for  hire  followed 
in  1885.  Federal  regulation  of  railroads  by  the  Interstate 
Commerce  Commission  began  in  1887,  and  the  Sherman  Anti- 
Trust  Act  followed  in  1890.  Even  after  the  tardy  resump- 
tion of  specie  payments  in  1879,  the  forces  of  discontent,  es- 
pecially among  the  agrarian  communities  of  the  West,  battled 
persistently  until  1896  for  inflation,  under  the  guise  of  free 
silver  coinage.  .  .  . 

The  growth  of  colossal  private  fortunes  began  to  excite 
formidable  unrest.  .  .  .  [Omitted  here  is  the  discussion  of 
the  then  current  political  issues  and  policies] . 


302       ECONOMIC  CAUSES  AFFECTING  POLITICAL  HISTORY 

I  have  tried  to  indicate,  first,  how  the  prevalence  of  natural 
economic  opportunities  created  for  a  time  in  the  belt-line  of  our 
expanding  national  power  a  fiercely  equalitarian  society,  and 
how  this  society  wrested  political  control  from  an  older 
hereditary  aristocracy  and  deposited  it  in  the  hands  of  the 
masses.  The  cost  of  this  progress  was  registered  in  a  fluctuat- 
ing civil  service,  and  in  a  permanent  and  costly  political  or- 
ganization which  has  too  often  succumbed  to  corrupting  in- 
fluences. Second,  I  have  sought  to  show  how  slavery  stamped 
indelibly  its  economic  character  upon  the  South,  until  the 
clash  of  the  two  opposed  industrial  systems  in  the  border 
States  of  the  West  precipitated  civil  war  and  led  to  the  even- 
tual abolition  of  slavery.  This  undoubted  gain  was  purchased 
only  at  the  cost  of  the  acute  race-antagonism  which  still 
agitates  the  South.  Lastly,  I  have  tried  to  outline  the  results 
of  the  more  systematic  exploitation  of  wealth  in  a  territory 
whose  frontier  has  disappeared, — a  process  which  has  largely 
proceeded  from  the  concentration  of  capitalistic  control,  which 
has  issued  in  unprecedented  opulence,  diffused  in  some  meas- 
ure throughout  the  greater  part  of  the  population,  and  yet  at- 
tended by  the  unfortunate  growth  of  class-antagonisms  and  by 
pervasive  distrust  of  our  party  organizations.  Each  move- 
ment has  shown  a  temporary  social  loss,  and  no  less  surely 
there  has  emerged  in  each  a  correlative  social  gain. 


GOLD  PRODUCTION,  1890-1910 

[THE  Director  of  the  Mint  in  his  annual  report  for  the  year  1911, 
discusses  the  recent  increase  in  the  output  of  gold,  the  manner  and 
extent  of  its  absorption  into  monetary  and  industrial  uses,  and  some 
of  the  probable  changes  in  the  future.  Omitting  many  details  of  the 
evidence,  we  give  here  the  most  essential  parts  of  the  discussion. 
(Annual  Report  of  the  Secretary  of  the  Treasury  on  the  State  of  the 
Finances,  June  30,  1911,  p.  266.)  1 

The  world's  absorption  of  gold  and  the  rise  of  prices. 

The  enormous  increase  in  the  production  of  gold  which  has 
occurred  in  recent  years,  and  the  relationship  that  may  exist 
between  these  enlarged  supplies  and  the  advancing  prices  of 
commodities,  has  awakened  a  world-wide  interest  among 
economists.  It  has  seemed  for  this  reason  worth  while  to 
undertake  the  task  of  tracing  the  yield  of  the  last  two  decades 
into  actual  use  for  the  purpose  of  discovering  where  it  has 
been  located  and  how  much  of  it  has  been  placed  where  it 
would  probably  exert  an  influence  for  the  expansion  of  credit, 
the  stimulation  of  industry,  and  the  rise  of  prices. 

The  new  golden  era  may  be  said  to  have  had  its  beginning 
with  the  discovery  of  the  Transvaal  deposits  in  South  Africa 
and  the  development  of  the  cyanide  process,  which  was  first 
used  successfully  in  the  treatment  of  the  Transvaal  ores,  but 
has  since  contributed  in  an  important  degree  to  the  increased 
production  of  nearly  all  gold-mining  districts.  .  .  . 

The  production  of  the  world  for  [three  of]  the  ten  years 
from  1890  to  1899,  inclusive,  and  for  [three  of]  the  eleven 
years  from  1900  to  1910,  inclusive,  is  given  in  separate  tables 
and  the  yield  of  the  three  principal  producing  countries  is  also 
shown  separately.  The  African  product  is  mainly  from  the 

803 


804 


GOLD  PRODUCTION 


Transvaal  but  includes  Rhodesia  and  lesser  fields  which  alto- 
gether had  in  1910  a  production  of  $19,592,679.  [Tables  ab- 
breviated]. 

GOLD  PBODUCTION— -FIRST  PEBIOD — 10  YEABS,   1890-1899,  IN   MILLION 

DOLLABS. 


Years. 
1890 
1895 
1899 


Africa. 

9.8 

44.7 

73.0 


United 

States.  Australia. 
32.8          29.8 
46.6          44.7 
71.0          79.3 


Total  10  years 420.0 

Average 42.0 


467.0 
46.7 


458.2 
45.8 


Others. 
40.6 
62.6 
83.3 

614.5 
61.4 


Total. 
113.1 
198.7 
306.7 

1959.9 
195.9 


GOLD  PBODUCTION — SECOND  PEBIOD — 11   YEABS,   1900-1910,  IN  MILLION 

DOLLABS. 


Years. 
1900 
1905 
1910 


Africa. 

8.6i 
113.2 
175.1 


United 

States.  Australia. 
79.1  73.4 

88.1  85.9 

96.2  65.4 


Total  11  years 1123.9 

Average 102.1 


955.3 
86.8 


862.7 
78.4 


Others. 

94.2 

92.9 

117.7 

1095.5 
99.5 


Total. 
255.6 
380.2 
454.7 

4037.6 
367.0 


By  way  of  accounting  for  the  distribution  and  employment 
of  this  product,  .  .  .  [several  tables  are  given  below]. 

Gold  used  in  the  arts.  It  is  confessedly  a  difficult  task  to 
make  a  satisfactory  estimate  of  the  amount  of  gold  consumed 
in  the  arts  and  industries,  for  the  reason  that  only  a  few 
countries  have  made  it  the  subject  of  official  inquiry.  Evi- 
dently, however,  it  is  necessary  in  any  consideration  of  the 
influence  of  the  new  supplies  of  gold  upon  prices  to  make 
some  allowance  for  the  portion  of  these  supplies  or  of  the 
existing  monetary  stock  that  has  been  diverted  to  industrial 
uses.  .  .  . 

[Page  272]  The  following  is  the  bureau's  estimate  in  de- 
tail for  the  consumption  in  the  arts  and  waste  of  gold  for 
the  calendar  year  1910,  excluding  Asia  and  Africa: 

[i  Note  effect  of  the  Boer  War.] 


GOLD  PRODUCTION  305 


WORLD'S  INDUSTRIAL  CONSUMPTION,  1910. 

Countries.  Gold  (value). 

United  States $  33,756,500 

Germany    15,536,000 

France    16,836,000 

Great  Britain 18,000,000 

All   other    countries 27,720,000 


Total    111,848,500 

Some  writers  of  repute  in  the  past  have  made  large  esti- 
mates for  the  abrasion  which  coins  suffer  under  use.  This 
was  doubtless  a  larger  factor  in  former  times  than  it  is  now, 
the  principal  use  of  coin  in  modern  monetary  systems  being 
to  serve  in  reserves  against  paper  money  in  circulation.  .  .  . 

Exports  to  Asia.  There  are  practically  no  figures  for  the 
absorption  of  Western  or  Central  Asia.  The  statistics  for 
China  are  of  little  value,  but  on  the  whole  there  is  a  move- 
ment outward,  showing  that  the  production,  possibly  aug- 
mented by  unrecorded  imports,  exceeds  the  recorded  imports. 

In  statistics  of  the  precious  metals  India  is  the  most  im- 
portant country  of  Asia,  and  has  long  been  one  of  the  most 
important  in  the  world.  The  Government  of  India  has  ad- 
vised this  bureau  that  the  uncoined  gold  imported  into  that 
country  might  be  considered  to  be  used  for  ornaments  and  in 
manufactures.  This  amounted  in  1910  to  $47,026,698. 

The  movement  to  India  deserves  to  be  treated  in  a  class  by 
itself.  A  large  part  of  the  gold  and  silver  that  goes  there 
sinks  out  of  sight,  and  whether  it  is  made  into  ornaments 
or  buried  in  the  ground,  is  withdrawn  at  least  in  large  part 
from  the  monetary  stock  of  the  world.  Some  of  it  may  be 
brought  out  in  periods  of  emergency,  such  as  times  of  famine, 
and  reconverted  into  money,  but  in  the  past  a  steady  stream 
of  the  precious  metals  has  moved  into  India  and  disappeared 
as  a  factor  in  the  commercial  world.  Sir  James  Wilson, 
K.C.S.L,  for  many  years  in  the  Government  service  in  India, 
in  a  comprehensive  address  delivered  before  the  East  India 

Association  of  London,  on  'June  14,  1911,  reported  the  net 
20 


306  GOLD  PRODUCTION 

imports  of  gold  by  India  since  1840  at  about  $1,200,000,000, 
or  one-tenth  of  the  world's  production  in  that  time.  .  .  . 

Sir  James  Wilson,  in  the  address  alluded  to,  sums  up  his 
explanation  by  saying : 

As  for  India,  her  prosperity  is  steadily  advancing.  Great  numbers 
of  her  people  prefer  to  spend  their  savings  on  gold  rather  than  on 
other  commodities.  The  probability  is  that  altogether  apart  from 
questions  of  currency,  India  will  continue  to  absorb  gold  in  ever- 
increasing  quantity.  .  .  . 

Egyptian  absorption  [page  275].  The  Egyptian  situation 
is  somewhat  like  that  of  India.  The  country  is  on  a  gold  basis, 
and  for  thirty  years  has  been  steadily  taking  gold  in  the  set- 
tlement of  its  trade  balances.  The  high  price  of  cotton  in 
recent  years  and  the  increasing  production  of  the  country 
explains  the  trade  balances,  but  there  is  some  mystery  about 
the  way  the  gold  disappears  from  view.  It  does  not  enter 
into  bank  stocks,  and  it  is  difficult  to  understand  how  a 
country  of  its  size  and  population  and  in  which  the  masses 
of  the  people  are  so  poor  can  absorb  so  much  gold  coin.  In 
the  first  period  under  review  the  customs  records  show  net 
imports  of  $58,670,000  and  in  the  second  period  $146,660,000. 
For  the  year  1910  they  were  $30,000,000. 

Some  light  is  shed  upon  the  situation  by  the  following  state- 
ment in  an  address  by  Lord  Cromer,  made  in  London  in  1907 : 

A  little  while  ago  I  heard  of  an  Egyptian  gentleman  who  died 
leaving  a  fortune  of  £80,000,  the  whole  of  which  was  in  gold  coin 
in  his  cellars.  Then,  again,  I  heard  of  a  substantial  yeoman  who 
bought  a  property  for  £25,000.  Half  an  hour  after  the  contract  was 
signed  he  appeared  with  a  train  of  donkeys  bearing  on  their  backs 
the  money,  which  had  been  buried  in  his  garden.  I  hear  that  on 
occasion  of  a  fire  in  a  provincial  town  no  less  than  £5,000  was  found 
hidden  in  earthen  pots.  I  could  multiply  instances  of  this  sort.  There 
can  be  no  doubt  that  the  practice  of  hoarding  is  carried  on  to  an 
excessive  degree.  (The  Statist,  Nov.  2.)  ... 

The  movement  to  South  America  [page  276] .  During  the 
first  period  there  was  little  change  in  the  gold  stocks  of  South 


GOLD  PRODUCTION  307 

America,  but  in  the  second  period  there  was  an  important 
movement  to  several  countries.  Two  in  particular,  viz.,  Ar- 
gentina and  Brazil,  drew  heavily  for  the  accumulation  of 
reserves  as  a  basis  for  their  paper  currencies.  This  policy 
in  Argentina  is  being  carried  out  under  the  law  of  November 
4,  1909,  and  in  Brazil  under  an  act  that  went  into  effect 
December  2,  1906.  The  total  stock  of  gold  in  Argentina  at 
the  close  of  the  calendar  years  1889  and  1899  was  estimated 
in  official  returns  to  this  bureau  at  $13,000,000  and  $25,- 
000,000,  respectively;  the  stock  in  the  conversion  fund  and 
in  the  Bank  of  the  Nation  on  the  31st  of  December,  1910,  was 
$244,400,000. 

No  estimates  are  available  for  the  amount  of  gold  in  mone- 
tary use  in  Brazil  in  the  years  1889  or  1899,  but  it  was  prob- 
ably not  in  excess  of  $10,000,000  at  either  time.  On  Decem- 
ber 31,  1910,  the  stock  in  the  conversion  fund  was  $98,500,000. 

According  to  the  customs  records  of  Great  Britain  and  the 
United  States,  Uruguay  has  imported  large  amounts  of  gold. 
Their  records  indicate  an  excess  of  exports  to  Uruguay  over 
imports  from  that  country  of  $128,000,000.  There  are  no 
published  figures  for  Uruguay  either  of  customs  records  or 
bank  reserves.  The  country  is  on  a  gold  basis,  but  its  pop- 
ulation, banking  business,  and  trade  are  all  too  small  for  such 
an  absorption  of  gold.  Probably  most  of  these  imports  ulti- 
mately reached  Argentina. 

There  have  been  small  gains  in  other  South  American  coun- 
tries and  it  is  probably  fair  to  estimate  that  altogether  South 
America  during  the  second  period  has  increased  its  gold  hold- 
ings by  the  amounts  now  in  the  conversion  funds  of  Argentina 
and  Brazil,  or,  in  round  figures,  $343,000,000.  .  .  . 

Summary  of  foregoing  [page  277].  During  the  first  pe- 
riod Asia  and  South  America  took  comparatively  little  gold. 
Where  they  had  any  metallic  standard  or  currency,  it  was 
silver,  and  for  many  countries  the  currency  was  inconvertible 
and  depreciated  paper. 

Reviewing  the  second  period,  in  which  the  production  of 


308  GOLD  PRODUCTION 

gold  amounted  to  approximately  $4,037,000,000,  the  following 
amounts  appear  to  have  been  diverted  from  monetary  use,  or 
so  employed  that  apparently  they  would  not  be  directly  effect- 
ive upon  world  prices: 

Industrial    consumption $  958,000,000 

India  433,000,000 

Egypt    146,000,000 

Japan    69,000,000 

South  America 343,000,000 

Mexico    28,500,000 


Total   1,977,500,000 

The  total  represents  nearly  one-half  of  the  production  of 
the  period.  The  demand  outside  of  the  old  circle  of  gold- 
using  nations  is  a  growing  one,  greater  in  the  last  half  of  the 
period  than  in  the  first,  still  increasing  in  the  countries  named 
and  spreading  to  other  countries  that  in  the  past  have  not 
been  accustomed  to  use  gold  as  money.  .  .  . 

GOLD    STOCKS    IN    SIGHT    IN    EUROPE,    THE   UNITED    STATES,    CANADA,    AUS- 
TRALASIA,  AND   SOUTH  AFRICAN   COLONIES.       [TABLE   COMPHEST] 

IN   MILLION   DOLLARS. 


Banks  and  treasuries. 

Dec.  31 

1889 

Dec.  31 
1899 

Dec.  31 
1910 

Increase 
1899  over 
1889 

Increase 
1910  over 
1889 

Total  United  States.  . 
Total  Europe  

423 
914 

683 
1,601 

1,410 
2,464 

259 
686 

726 
863 

Total    Australia,    Can- 
ada, S.  Africa  

Grand  total.  .  . 

102 
1,440 

161 

2,447 

343 
4,218 

59 
1,006 

181 
1,771 

CIRCULATING  NOTES  AND  LOANS   AND  DISCOUNTS. 


Institutions. 

Notes 
Dec.  31 
1889 

in  circu] 
Dec.  31 
1899 

ation 
Dec.  31 
1910 

Loam 
Dec.  31 
1889 

and  disc 
Dec.  31 
1899 

ounts 
Dec.  31 
1910 

Total    Europe  ' 

2,818 
126 

145 

2,973 
199 

197 

4,324 
!         684 

398 

3,031 
3,842 

909 

4,184 
5,167 

1,351 
10,704 

5,146 
12,855 

2,591 
20,593 

Total    United    States  
Total  Australia,   Canada,   S. 

Grand    total 

3,089 

3,369 

5,407 

7,782 

GOLD  PRODUCTION  309 

Relative  value  of  factors  in  the  calculation.  In  consider- 
ing the  figures  for  production,  consumption,  and  distribution, 
those  for  the  holdings  of  banks  and  treasuries  are,  of  course, 
of  first  importance,  there  being  no  element  of  uncertainty  in 
them.  Next  to  them  in  order  of  credibility  are  the  figures 
for  production,  which  for  all  the  more  important  mining  dis- 
tricts are  reported  by  responsible  authorities.  The  figures 
for  consumption  in  the  arts  must  be  allowed  a  larger  margin 
for  error,  and  have  been  fully  explained.  The  official  state- 
ments of  the  exports  and  imports  of  different  countries,  which 
might  be  supposed  to  be  from  trustworthy  records,  in  fact 
must  be  used  with  great  caution,  as  they  are  frequently  con- 
tradictory, or  inconsistent  with  more  credible  evidence.  .  .  . 
It  is  generally  understood  that  exports  are  given  a  less  strict 
surveillance  than  imports,  and  that  movements  by  sea  are 
more  accurately  recorded  than  those  between  adjacent  coun- 
tries by  rail. 

The  first  period,  1890-1899.  The  production  of  the  first 
period  was  estimated  in  round  numbers  at  $1,960,000,000, 
which  from  the  best  data  available  seems  to  have  been  dis- 
tributed about  as  follows: 

Industrial  arts $  570,000,000 

Banks  and  treasury  of  United  States 260,000,000 

European  banks 686,800,000 

Banks  of  Canada,  Australasia,  and  South  Africa       59,700,000 


Total  1,576,500,000 

Other  banks,  circulation,  private  holdings,  etc...      383,500,000 


Total  1,960,000,000 

.  .  .  The  production  of  gold  during  this  decade  was  approx- 
imately $900,000.000  greater  than  in  the  preceding  one,  and 
the  increase  was  largely  taken  for  the  reorganization  of  mon- 
etary systems  and  for  strengthening  bank  reserves.  The  gold 
reserves  of  European  banks  increased  75  per  cent.,  while  the 
paper  issues  increased  less  than  5  per  cent.  The  world  over 
it  was  a  decade  in  which  enterprise  was  at  a  low  ebb,  although 
the  years  1890-1892  were  very  prosperous  in  the  United 


310  GOLD  PRODUCTION 

States,  and  there  was  a  general  revival  in  the  last  two  years 
of  the  period.  Prices  reached  the  lowest  10-years  level  for 
which  records  are  existent. 

Second  period,  1900-1910.  According  to  the  figures  given 
the  distribution  of  new  gold  during  the  second  period  was 
apparently  about  as  follows: 

Industrial    consumption $  958,000,000 

India   433,000,000 

Egypt    146,000,000 

Bank  of  Japan 69,000,000 

Banks  and  conversion  funds  of  South  America . .  343,000,000 

Banks  of  Mexico 28,500,000 

Banks  and  treasury  of  the  United  States 726,800,000 

Banks  and  treasury  of  Canada 85,700,000 

Banks,   Australasia  and  South  Africa 95,600,000 

Banks  of  issue  of  Europe 863,200,000 

Total   3,748,800,000 

Other  banks,  circulation,  private  holdings,  etc...      288,200,000 

Grand  total 4,037,000,000 

Again,  the  amount  unaccounted  for,  and  which  is  consid- 
ered to  have  been  gained  by  other  banks  or  to  have  entered 
into  circulation  and  private  hoards,  may  seem  small  for  the 
volume  of  production.  In  the  United  States  a  calculation 
based  upon  coinage  and  the  exports  and  imports  of  domestic 
coin,  indicates  a  net  gain  of  gold  coin  in  circulation  of  $71,- 
000,000.  It  is  to  be  considered  that  there  is  an  undoubted 
tendency  in  all  countries  to  use  banks  more  than  formerly, 
and  it  is  probable  that  the  stock  of  gold  in  banks  has  been 
recruited  not  only  from  new  production  but  to  some  extent 
from  gold  heretofore  held  in  private  hoards  and  out  of  use. 
In  every  country  the  younger  generation  to  whom  these  hoards 
descend  is  likely  to  put  them  to  some  use. 

The  table  shows  that  banks  of  issue  in  Europe  in  the  second 
period  increased  their  gold  stocks  by  about  50  per  cent,  and 
their  note  issues  about  the  same.  Their  advances  or  loans 
and  discounts  increased  about  25  per  cent.,  or  by  a  lower  per- 
centage than  during  the  previous  period. 

An  examination  of  the  individual  gains  of  these  institu- 


GOLD  PRODUCTION  311 

tions  will  show  that  a  large  amount  of  the  new  gold  taken 
by  Europe  has  been  devoted  to  the  same  purpose  as  in  the 
preceding  period,  to  wit,  the  rehabilitation  of  monetary 
systems  and  to  strengthen  and  buttress  the  institutions  of 
issue.  .  .  . 

The  outlook  for  gold  production  [page  286] .  It  has  been 
a  theory  of  writers  on  the  subject  that  the  rise  of  commodities 
and  wages  would  automatically  check  the  production  of  gold, 
thus  providing  its  own  corrective,  but  the  gold-mining  indus- 
try furnishes  an  illustration  of  how  invention,  organization, 
and  the  use  of  capital  are  able  to  accomplish  a  reduction  in 
costs  when  every  factor  in  the  calculation  shows  an  advancing 
tendency.  The  cost  of  handling  ore  and  extracting  gold  in 
the  Transvaal  mines  per  ton  of  ore  treated  has  steadily  de- 
clined and  made  a  new  low  record  in  1910. 

The  cost  of  mining  gold,  however,  unless  revolutionary 
changes  are  accomplished,  does  not  have  as  great  an  influence 
upon  production  as  in  the  case  of  common  commodities  for 
which  there  is  an  unlimited  supply  of  raw  materials.  It  is  a 
fact  already  alluded  to  in  this  paper,  and  familiar  to  all  who 
have  followed  developments  in  the  gold-mining  industry,  that 
the  great  increase  in  the  output  since  1890  has  been  due  in  the 
main  to  two  contributing  discoveries  that  were  directly  re- 
lated to  each  other,  to  wit,  the  discovery  of  the  Transvaal 
field  and  the  discovery  of  the  cyanide  process.  Of  course,  it 
is  possible  at  any  time  for  both  of  these  discoveries  to  be 
repeated  in  others  as  important,  but  until  such  new  discov- 
eries are  made  there  will  be  no  similar  leap  in  production. 
Since  1906  the  rate  of  production  in  the  United  States,  in- 
cluding Alaska,  has  been  practically  at  a  standstill.  There 
is  nothing  to  indicate  a  considerable  change  in  either  direc- 
tion. Australasia  has  been  on  a  declining  scale  since  1903, 
the  annual  yield  being  now  about  $28,000,000  below  the  high 
year.  Russia,  Canada,  and  Mexico  have  shown  an  increase 
of  late  about  sufficient  to  offset  Australasia.  The  Transvaal 
has  been  pushed  up  to  a  new  record  in  1911,  but  the  deposit  is 


312  GOLD  PRODUCTION 

well  defined,  and  the  increased  production  of  recent  years  has 
been  due  to  an  enlargement  of  the  crushing  plants  rather 
than  to  any  extension  of  the  field.  This  policy  of  increasing 
the  investments  in  order  to  exhaust  the  mines  more  rapidly 
has  probably  gone  nearly  as  far  as  it  can  be  profitably  fol- 
lowed. .  .  . 

While  it  is  not  likely  that  the  Band  will  show  an  apprecia- 
ble decrease  for  a  good  many  years  to  come,  it  is  probably  not 
far  from  the  maximum  output.  There  has  been  no  gain  in 
the  world's  production  for  some  years  except  that  made  by 
the  Rand. 

The  figures  given  in  the  foregoing  tables  show  how  the 
hitherto  undeveloped  countries,  outside  of  the  old  circle  of 
industrial  nations,  are  reaching  out  for  a  share  of  the  new 
supplies.  As  a  river  rises  in  flood  the  water  creeps  over  its 
banks,  backs  up  its  tributaries,  fills  up  adjacent  low  places, 
and  spreads  out  over  expansive  areas  of  lowlands,  with  the 
result  that  vastly  more  water  is  required  to  raise  the  level  at 
the  high-water  stage  than  when  the  river  is  low.  A  some- 
what similar  distribution  of  new  gold  is  going  on  and  in 
prospect. 

The  historical  parallel  [page  288].  Gold  was  discovered 
in  California  in  1848  and  in  Australia  in  1851,  and  by  1852 
these  new  fields  were  producing  together  over  $100,000,000 
per  year.  The  first  noticeable  effect  was  an  accumulation  of 
gold  in  the  Bank  of  England,  which  reduced  its  discount  rate 
to  encourage  borrowing.  The  first  industrial  effect  was  in  the 
shipping  and  shipbuilding  industry,  due  to  the  demands  of  an 
increasing  trade  with  the  United  States  and  Australia,  but 
the  revival  soon  extended  to  the  building  trades  and  thence  to 
all  branches  of  industry,  and  spread  over  Europe. 

By  this  time  apprehensions  were  expressed  as  to  the  dis- 
turbing effects  upon  monetary  systems  of  the  threatened  in- 
undation of  gold.  Holland  and  Belgium  stopped  coining  it. 

About  this  time  counteracting  influences  began  to  operate, 
and  in  view  of  the  present  movement  of  gold  to  India  it  is  an 


GOLD  PRODUCTION  313 

interesting  fact  that  the  most  important  modifying  influence 
at  that  time  was  the  movement  of  specie  to  India.  .  .  . 

Professor  Stanley  Jevons,  a  contemporary  writer  of  high 
repute  .  .  .  writing  in  1865  and  reviewing  prices  since  1849, 
said: 

If  we  compare  prices  now  (March,  1865)  with  what  they  were  at 
their  lowest  in  1849,  we  find  there  has  heen  a  rise  of  21  per  cent. 
If  we  take  the  average  of  1845-1850  as  our  standard  of  comparison, 
the  rise  is  11  per  cent.  The  real  permanent  rise  due  to  the  gold 
discoveries  is  doubtless  something  between  these,  or  probably  nearer 
the  higher  limit,  21  per  cent.  The  gold  discoveries  have  caused  this 
rise  of  price.  They  have  also  neutralized  the  fall  of  prices  which 
might  have  been  expected  from  the  continuous  progress  of  invention 
and  production,  but  of  which  the  amount  is  necessarily  unknown. 


THE  NATIONAL  BANKS 

[THE  Comptroller  of  the  Currency,  an  officer  of  the  Treasury  De- 
partment of  the  U.  S.,  gives  in  his  annual  report  much  information 
not  only  about  the  national  banks,  but  about  State,  private,  and 
savings  banks  in  this  country  and  in  foreign  countries.  The  following 
are  a  few  extracts  from  the  report  of  1910.] 

Organization  of  national  banks.  Under  section  5133  of 
the  Revised  Statutes  the  organization  of  national  banking 
associations  by  any  number  of  persons,  not  less  than  five, 
is  authorized.  This  section  provides  that  the  incorporators 
shall  enter  into  articles  of  association  specifying  in  general 
terms  the  object  for  which  the  association  is  formed  and  a 
copy  thereof  forwarded  to  the  Comptroller  to  be  filed  and 
preserved  in  his  office.  The  following  section  provides  for 
the  execution  of  an  organization  certificate  by  those  who  have 
entered  into  articles  of  association.  This  certificate  is  re- 
quired to  be  acknowledged  before  a  judge  of  some  court  of 
record  or  a  notary  public  and  transmitted  to  the  Comptroller. 
When  these  documents  have  been  filed  with  the  Comptroller 
the  association  becomes  a  body  corporate,  but  with  powers 
limited  to  transaction  of  business  incidental  to  organization 
until  the  issuance  of  the  Comptroller's  certificate  authorizing 
the  association  to  begin  the  business  of  banking.  The  law 
further  requires  the  collection  and  certification  of  payment 
of  at  least  50  per  cent,  of  the  authorized  capital  stock  and 
the  deposit  of  a  specified  amount  of  United  States  registered 
interest-bearing  bonds,  and  authorizes  an  examination  for  the 
purpose  of  determining  the  amount  of  money  paid  in  on  ac- 
count of  capital  stock  and  whether  all  requirements  of  law 
in  relation  to  organization  have  been  met. 

As  the  law,  however,  specifically  confers  upon  the  Comp- 

314 


THE  NATIONAL  BANKS  315 

troller  discretion  with  respect  to  approval  of  the  name  selected 
for  an  association,  the  course  of  procedure  under  the  estab- 
lished rules  of  the  office  is  to  require  the  submission  of  a 
formal  application  for  authority  to  organize  an  association 
wherein  is  stated  the  title  desired,  location  of  the  bank,  cap- 
ital stock,  the  signatures  of  the  applicants  given,  accompanied 
by  advice  in  regard  to  the  business  and  financial  standing  of 
the  applicants,  number  of  shares  to  be  subscribed  for,  and 
the  previous  banking  experience,  if  any,  of  the  applicants. 
Indorsements  are  required  with  respect  to  the  character  and 
standing  of  the  applicants,  the  population  of  the  place  at 
which  it  is  proposed  to  organize  the  bank,  and  an  expression 
of  opinion  with  respect  to  prospects  of  success  of  the  associa- 
tion if  chartered  and  conservatively  managed. 

Prior  to  the  disposition  of  an  application  a  copy  thereof  is 
sent  to  the  national-bank  examiner,  to  the  member  in  Con- 
gress for  the  district  in  which  the  bank  is  located,  and  to 
the  superintendent  of  the  State  banking  department,  with 
request  for  information  with  respect  to  the  character  and 
standing  of  the  applicants,  the  existing  demand  for  a  bank  at 
the  locality,  and  an  expression  of  opinion  as  to  whether  suc- 
cess is  probable. 

Applications  for  authority  to  convert  State  banks  into 
national  banking  associations  are  made  by  the  directors,  and 
each  case  of  this  character  is  investigated  for  the  purpose  of 
determining  whether  the  bank  has  been  conducted  in  con- 
formity with  law,  its  measure  of  success,  and  also  as  to  the 
character  of  its  assets  and  general  business. 

In  view  of  the  fact  that  bank  stock  is  generally  regarded 
as  a  very  desirable  investment,  the  organization  of  banks, 
both  national  and  State,  has  been  very  active  during  recent 
years,  and  it  has  been  shown  to  be  evident  to  both  federal 
and  state  authorities  that  many  banking  institutions  are  or- 
ganized, or  organization  attempted,  without  giving  due  con- 
sideration to  their  demand  or  their  prospects  of  success.  As 
far  as  possible  the  state  authorities  are  now  acting  in  har- 


316  THE  NATIONAL  BANKS 

mony  with  the  Comptroller  in  the  upbuilding  of  banking  con- 
ditions by  preventing  the  organization  of  banks  where  the 
demand  therefore  is  not  apparent  or  where  organization  is  at- 
tempted by  those  whose  character  and  standing  are  ques- 
tionable. 

During  the  year  ended  October  31,  1910,  425  applications 
were  received  for  authority  to  organize  national  banks,  in- 
cluding applications  to  convert  state  banking  institutions. 
Approval  was  granted  in  315  cases  and  there  were  74  rejec- 
tions, the  cause  of  the  latter  being,  first,  existence  of  ample 
banking  facilities  at  the  place;  second,  population  and  busi- 
ness too  limited  to  warrant  success;  third,  character  of  the 
applicants  and  of  others  interested.  ^Rejections  of  applica- 
tions to  convert  were  based,  primarily,  upon  information  re- 
ceived to  the  effect  that  the  management  had  been  neither 
in  conformity  with  law  nor  successful. 

Charters  were  issued  during  the  year  to  311  associations 
having  aggregate  authorized  capital  stock  of  $30,760,000,  and 
from  the  date  of  the  passage  of  the  national-banking  act  in  1863 
to  October  31,  1910,  charters  to  the  number  of  9883  were 
granted.  At  the  close  of  the  current  year  7218  banks  were  in 
active  operation,  2176  having  been  placed  in  voluntary  liqui- 
dation and  489  in  the  charge  of  receivers  for  liquidation  of 
their  business  in  the  interest  of  depositors  and  other  cred- 
itors. Included  in  the  total  number  of  charters  granted  were 
1571  to  institutions  which  were  conversions  of  state  banks. 
The  capital  of  these  converted  banks  at  date  of  entrance  into 
the  national  banking  system  was  $330,665,928. 

Under  the  provisions  of  the  act  of  March  14,  1900,  national 
banks  to  the  number  of  2953,  with  aggregate  capital  of  $76,- 
930,500,  were  organized,  the  average  capital  being  approxi- 
mately $26,000.  Since  the  date  of  the  act  in  question,  1666 
banks  were  organized  under  the  law  of  1864,  their  aggregate 
capital  being  $214,912,800  and  the  individual  capital  $50,000 
or  more.  It  further  appears  that  652  of  the  banks  chartered 


THE  NATIONAL  BANKS  317 

in  this  period  were  conversions  of  state  banks,  their  capital 
being  $51,445,800;  1403  reorganizations  of  state  or  private 
banks,  with  aggregate  capital  of  $93,987,000;  and  2564  pri- 
mary organizations,  the  capital  represented  being  $146,410,- 
500.  The  total  number  of  banks  organized  from  March  14, 
1900,  to  the  end  of  the  current  year  was  4619  with  aggregate 
capital  of  $291,843,300,  exceeding  by  1002  the  number  of 
banks  in  active  operation  on  March  14,  1900.  The  average 
number  of  banks  organized  monthly  from  March  14,  1900,  to 
October  31,  1907,  was  approximately  40;  the  average  in  1908, 
27;  in  1909,  25;  and  in  1910,  26. 

Reserves  and  deposits.  The  original  law  required  the 
maintenance  of  a  reserve  on  deposits  in  all  respects  but  an 
exception  was  made  with  respect  to  United  States  deposits  in 
the  act  of  May  30,  1908.  In  determining  the  amount  of 
deposits  on  which  reserve  is  required  to  be  held  there  is  first 
ascertained  the  net  balance  due  to  other  banks,  to  which  are 
added  dividends  unpaid,  individual  deposits,  and  deposits  of 
United  States  disbursing  officers.  From  this  gross  amount 
the  following  deductions  are  allowed:  Checks  on  other  banks 
in  the  same  place,  exchanges  for  clearing  house,  bills  of  other 
national  banks,  and  amount  due  from  the  Treasurer  of  the 
United  States.  The  resultant  amount  of  these  deductions 
represents  the  sum  of  the  deposits  upon  which  is  based  the 
required  reserve;  that  is,  25  per  cent,  for  reserve  city  banks 
and  15  per  cent,  for  all  other  banks.  The  amount  of  the 
reserve  being  determined,  there  is  deducted  therefrom  the 
5  per  cent,  redemption  fund  which  the  law  authorizes  to  be 
counted  as  a  part  of  the  reserve.  The  25  per  cent,  reserve 
required  by  central  reserve  city  banks  must  consist  of  lawful 
money  in  bank ;  in  other  reserve  city  banks  at  least  121/2  per 
cent,  in  bank,  with  a  limit  of  12y2  per  cent,  with  approved 
agents  in  central  reserve  city  banks.  Banks  located  else- 
where than  in  reserve  cities  are  required  to  maintain  a  reserve 
of  15  per  cent.,  of  which  at  least  two-fifths  or  6  per  cent.,  must 


318  THE  NATIONAL  BANKS 

be  in  cash  in  bank  and  three-fifths,  or  9  per  cent.,  may  be  on 
deposit  with  correspondents  in  central  or  other  reserve  city 
banks. 

While  occasionally  a  bank  is  deficient  in  the  amount  of 
reserve  required,  the  aggregate  requirement  for  all  banks  is 
rarely  deficient.  .  .  . 

The  entire  reserve  required  to  be  held  by  central  reserve 
city  banks  is  in  lawful  money  with  the  exception  of  the  re- 
demption fund,  which  averages  approximately  one-fourth  of 
1  per  cent.  In  other  reserve  city  banks  the  lawful  money 
reserve  slightly  exceeds  51  per  cent.,  the  amount  available 
with  reserve  agents  47  per  cent.,  and  the  redemption  fund 
slightly  less  than  2  per  cent.  The  reserve  held  in  lawful 
money  by  country  banks  averages  45  per  cent,  of  the  total 
reserve  held,  the  amount  available  with  reserve  agents  aver- 
aging approximately  50  per  cent.,  and  the  amount  in  redemp- 
tion fund  slightly  in  excess  of  4  per  cent.  Taking  the  coun- 
try as  a  whole,  the  lawful  money  in  bank  is  approximately 
64  per  cent,  of  the  total  reserve  held,  amount  available  with 
reserve  agents  34  per  cent.,  and  the  redemption  fund  2  per 
cent. 

Profit  on  national-bank  circulation.  In  computing  the 
profit  on  the  issuance  of  national-bank  circulation  it  is  as- 
sumed that  the  entire  amount  based  on  the  bond  deposit  is 
in  circulation  and  no  deduction  is  made  by  reason  of  the  fact 
that  a  reserve  fund  of  5  per  cent,  on  the  issues  is  required  to 
be  maintained  in  the  office  of  the  Treasurer  of  the  United 
States  for  the  redemption  of  notes  as  presented  at  the  de- 
partment, as  the  redemption  fund  is  permitted  by  law  to  be 
counted  as  a  part  of  the  bank's  lawful  reserve.  In  the  cal- 
culation appearing  in  the  appendix  to  this  report,  the  profit 
is  stated,  based  on  the  average  net  price  of  bonds,  monthly, 
during  the  year  ended  October  31,  1910,  and  is  computed 
separately  on  deposits  of  2  per  cent,  consols  of  1930,  the  4  per 
cent,  loan  of  1925,  and  the  2  per  cent.  Panama  Canal  Loan. 
Money  is  assumed  to  be  worth  6  per  cent,  and  the  measure  of 


THE  NATIONAL  BANKS  319 

profit  is  the  difference  between  the  net  receipts  from  the  cir- 
culation loaned  at  6  per  cent,  and  interest  that  would  be  ob- 
tained on  the  cost  of  the  bonds  loaned  at  the  same  rate;  in 
other  words,  from  the  interest  received  on  the  bonds  at  the 
rate  provided  therein,  and  the  interest  on  circulation  loaned 
at  6  per  cent,  are  deducted  the  taxes  on  circulation,  expense 
incident  to  the  obtaining  of  circulation,  i.e.,  plates,  redemp- 
tion charges,  etc.,  together  with  the  sinking  fund  and  from 
the  difference  is  deducted  the  interest  on  the  cost  of  the  bonds 
to  show  the  profit. 

During  the  year  in  question,  2  per  cent,  consols  of  1930 
ranged  in  price  from  a  minimum  of  100.505  on  November, 
1909,  to  a  maximum  of  101.24  in  September,  1910,  and  on  the 
same  dates  the  profit  on  circulation  in  excess  of  6  per  cent,  on 
the  investment  was  1.387  per  cent,  and  1.313  per  cent.,  re- 
spectively; that  is  to  say,  on  the  issue  of  $100,000  of  circula- 
tion on  the  security  of  2  per  cent,  consols  of  1930,  at  a  cost 
of  100.505  the  profit  on  circulation  in  excess  of  6  per  cent,  on 
the  investment  was  $1349.39,  and  on  the  bonds  at  a  cost  of 
101.24  the  profit  was  $1329.31. 

The  highest  average  net  price  of  4  per  cent,  bonds  was 
116.693  in  November,  1909,  and  the  rate  on  circulation  se- 
cured by  bonds  of  that  class  was  1.076  per  cent.  The  lowest 
price  on  these  bonds  during  the  year  was  114.875  during  May, 
June,  and  July,  the  rate  of  profit  being  1.225  per  cent,  in 
May,  1.220  per  cent,  in  June,  and  1.225  per  cent,  in  July. 
The  rate  of  profit,  however,  reached  the  maximum  of  1.233 
.per  cent,  when  the  bonds  in  February  were  quoted  at  114.932. 
The  profit  on  circulation  secured  by  the  Panama  Canal  bonds 
is  but  nominally  in  excess  of  the  profit  on  2  per  cent,  consols, 
although  in  November,  1909,  when  the  Panama  Canal  bonds 
were  quoted  at  100.130,  the  rate  of  profit  on  circulation  was 
greater  than  on  any  other  class  of  bonds  at  any  time  during 
the  year,  being  stated  at  1.426  per  cent. 

Earnings  and  dividends  of  national  banks.  While  the 
dividend  periods  of  national  banks  vary,  and  under  the  law 


320  THE  NATIONAL  BANKS 

reports  of  earnings  and  dividends  are  required  to  be  made  to 
the  Comptroller  within  ten  days  after  the  declaration  of  divi- 
dends, for  statistical  purposes  the  reports  are  abstracted  for 
semiannual  periods  ending  December  31  and  June  30.  In 
the  appendix  to  this  report  appear  the  abstracts,  by  reserve 
cities  and  States,  for  the  periods  ended  December  31,  1909, 
and  June  30,  1910.  Combining  these  two  abstracts,  for  the 
purpose  of  showing  results  for  the  entire  year,  it  appears  that 
the  average  capital  on  which  dividends  were  paid  was  $963,- 
457,549.  The  average  surplus  was  $630,159,719  and  the  gross 
earnings  $402,655,823.44  against  which  were  charged  losses 
and  premiums  aggregating  $38,714,082.62,  or  9.6  per  cent., 
and  expenses  of  $209,784,251.35  or  52.18  per  cent.  With 
these  deductions  the  net  earnings  are  shown  to  have  been 
$154,167,489.47,  from  which  dividends  were  paid  to  the 
amount  of  $105,898,622,  or  10.99  per  cent,  on  the  capital  and 
6.65  per  cent,  on  the  capital  and  surplus.  The  net  earnings 
were  equivalent  to  9.67  per  cent,  of  the  capital  and  surplus. 

The  act  requiring  the  submission  of  reports  of  earnings  and 
dividends  was  not  passed  until  1869 ;  hence  the  records  begin 
with  the  year  ended  March  1,  1870,  continuing  to  June  30, 
1910,  a  period  of  forty-one  years.  The  average  annual  net 
earnings  of  banks  during  this  period  are  shown  to  have  been 
$71,956,096  and  the  average  dividends  $54,198,299,  or  an 
average  rate  of  8.98  per  cent,  on  the  capital  stock.  The  aggre- 
gate net  earnings  for  the  forty-one  years  are  stated  at  $2,950,- 
199,928  and  the  dividends  at  $2,222,130,367. 

National-currency  associations.  In  the  annual  report  of 
the  Comptroller  of  the  Currency  for  1908  the  salient  pro- 
visions were  published  of  the  act  of  May  30,  1908,  providing 
for  the  formation  of  national-currency  associations  and  the 
issue  of  additional  national-bank  currency. 

Under  this  act  national-currency  associations  may  be  formed 
by  any  number  of  national  banks,  not  less  than  ten,  with 
aggregate  capital  and  surplus  of  at  least  $5,000,000,  and  lo- 
cated in  contiguous  territory.  No  national  bank,  however, 


THE  NATIONAL  BANKS  321 

may  be  a  member  of  a  currency  association  unless  it  has  an 
unimpaired  capital  and  a  surplus  amounting  to  at  least  20 
per  cent,  of  its  capital.  It  is  further  provided  that  to  be 
entitled  to  issue  additional  currency  a  national  bank,  a  mem- 
ber of  the  currency  association,  shall  have  circulation  out- 
standing, secured  by  United  States  bonds,  aggregating  not 
less  than  40  per  cent,  of  the  capital  stock.  Additional  cir- 
culation provided  by  this  act  may  only  be  issued  upon  the 
recommendation  of  the  Comptroller  and  approval  of  the  Sec- 
retary of  the  Treasury.  The  maximum  circulation  issuable 
by  a  bank  on  United  States  bonds,  and  under  authority  of 
the  act  of  May  30,  1908,  is  measured  by  the  capital  and  sur- 
plus of  the  bank. 

The  officers  of  a  currency  association,  on  behalf  of  one  of 
the  bank  members,  may  apply  for  authority  to  issue  additional 
circulation  to  an  amount  not  exceeding  75  per  cent,  of  the 
cash  value  of  the  securities  or  commercial  paper  deposited 
with  the  association,  and  upon  deposit  of  state,  city,  town, 
county,  or  other  municipal  bonds  of  the  character  prescribed 
by  the  act  may  obtain  for  issue  circulating  notes  to  the  extent 
of  90  per  cent,  of  the  market  value  of  the  bonds  deposited. 
The  issue  of  additional  circulation  on  commercial  paper,  how- 
ever, is  limited  to  30  per  cent,  of  the  unimpaired  capital  and 
surplus. 

The  act  contemplates  that  no  additional  circulation  shall 
be  permitted  to  be  issued  unless,  in  the  judgment  of  the  Sec- 
retary of  the  Treasury,  conditions  in  the  country  at  large,  or 
in  a  special  locality,  warrant  such  action,  and  under  section 
8  of  the  act  it  is  made  the  duty  of  the  Secretary  of  the 
Treasury  to  obtain  information  with  reference  to  the  value 
and  character  of  securities  authorized  to  be  accepted,  and 
from  time  to  time  to  furnish  information  to  national-banking 
associations  as  to  such  securities  as  would  be  acceptable  under 
the  provisions  of  the  act. 

The  act  further  provides  for  an  issue  of  circulating  notes 

and  the  incorporation  of  the  statement  upon  their  face  that 
21 


322  THE  NATIONAL  BANKS 

"they  are  secured  by  United  States  bonds  or  other  securi- 
ties, "  certified  by  the  written  or  engraved  signatures  of  the 
Treasurer  and  Register  and  by  the  imprint  of  the  seal  of  the 
Treasury.  They  shall  also  express  upon  their  face  the  prom- 
ise of  the  association  receiving  the  same  to  pay  on  demand, 
attested  by  the  signature  of  the  president  or  vice-president  and 
cashier.  Under  this  requirement,  circulation  has  been  pre- 
pared for  every  national-banking  association,  and  there  is 
stored  in  the  reserve  vault  of  the  bureau  a  stock  of  incomplete 
currency  amounting  to  $500,000,000.  So  far,  no  circulating 
notes,  other  than  those  secured  by  United  States  bonds,  have 
been  issued,  but  all  incomplete  currency  shipped  to  a  bank 
bears  the  legend  quoted. 

On  June  30,  1910,  the  number  of  national  banks  reporting 
was  7145,  with  paid-in  capital  of  $989,567,114  and  surplus  of 
$644,857,482.82.  Of  these  banks,  5699  had  circulation  se- 
cured by  United  States  bonds  equal  to  or  exceeding  40  per 
cent,  of  the  capital,  and  1415  circulation  less  than  that  pro- 
portion. 

In  less  than  thirty  days  after  the  passage  of  the  emergency- 
currency  act  a  national-currency  association  was  formed  in 
the  District  of  Columbia,  of  which  all  of  the  eleven  banks  in 
the  District  were  members.  The  aggregate  capital  and  sur- 
plus of  the  banks  at  that  time  were  $5,202,000  and  $3,942,000 
respectively.  .  .  . 

While  the  formation  of  other  currency  associations  was 
undertaken,  none  was  perfected  in  a  manner  acceptable  to 
the  Secretary  of  the  Treasury  until  the  midsummer  of  1910, 
by  reason  of  what  were  regarded  as  insurmountable  obstacles 
on  the  part  of  banks  interested.  These  obstacles,  however, 
were  in  a  large  measure  overcome  by  a  revised  construction  of 
the  law. 

Banking  power  of  the  United  States.  The  following  table 
shows  for  1910  the  banking  power  of  the  United  States,  in- 
cluding the  island  possessions,  as  indicated  by  the  volume  of 
capital^  surplus^  deposits,  and  circulation. 


THE  NATIONAL  BANKS 

Amounts  in  million  dollars. 


323 


1 

"3 

00° 

a 

» 
"3 

A 

a 

*S 

|«S 

o 

ft 

Z  S3 

3 

£ 

6 

£§ 

I 

5-3 

£ 

National   banks  .... 

7,145 

$     989.5 

$     861.4 

a$    5,341.7 

$675.6 

7,868.3 

State    etc      banks 

15  950 

890.3 

1,091.0 

9,996  1 

12  553  6 

Non-reporting 

4  168 

77.1 

28.3 

521.6 

627  1 

27,263 

$1,957.1 

$1,980.8 

$15,859.5 

$675.6 

21,049.2 

a  Includes  government  deposits. 

b  Number  of   banks   and  amounts  estimated  upon  statements   from  reporting 
private  banks. 


PLAN  FOR  MONETARY  LEGISLATION 

[THE  act  of  Congress,  May  30,  1908,  provided  for  a  national  monetary 
commission  to  inquire  into  and  report  to  Congress  what  changes  were 
necessary  or  desirable,  in  the  monetary  system  of  the  United  States, 
or  in  the  laws  relating  to  banking  and  currency.  After  extended  in- 
quiries and  public  discussion,  the  Commission  submitted  its  report  to 
Congress  in  January,  1912.  The  principal  defects  to  be  remedied  were 
summarized  in  the  following  propositions  in  Senate  Document  243 
;(Jan.  9,  1912),  62d  Congress,  2d  session,  pp.  6-9.] 

Defects  of  our  present  monetary  system: 

1.  We  have  no  provision  for  the  concentration  of  the  cash 
reserves  of  the  banks  and  for  their  mobilization  and  use  wher- 
ever needed  in  times  of  trouble.     Experience  has  shown  that 
the  scattered  cash  reserves  of  our  banks  are  inadequate  for 
purposes  of  assistance  or  defense  at  such  times. 

2.  Antiquated  Federal  and  State  laws  restrict  the  use  of 
bank  reserves  and  prohibit  the  lending  power  of  banks  at 
times  when,  in  the  presence  of  unusual  demands,  reserves 
should  be  freely  used  and  credit  liberally  extended  to  all  de- 
serving customers. 

3.  Our  banks  also  lack  adequate  means  available  for  use 
at  any  time  to  replenish  their  reserves  or  increase  their  loan- 
ing powers  when  necessary  to  meet  normal  or  unusual  de- 
mands. 

4.  Of  our  various  forms  of  currency  the  bank-note  issue  is 
the  only  one  which  we  might  expect  to  respond  to  the  chang- 
ing needs  of  business  by  automatic  expansion  and  contraction, 
but  this  issue  is  deprived  of  such  qualities  by  the  fact  that  its 
volume  is  largely  dependent  upon  the  amount  and  price  of 
United  States  bonds. 

5.  We  lack  means  to  insure  such  effective  cooperation  on 

324 


PLAN  FOR  MONETARY  LEGISLATION  325 

the  part  of  banks  as  is  necessary  to  protect  their  own  and  the 
public  interests  in  times  of  stress  or  crisis.  There  is  no 
cooperation  of  any  kind  among  banks  outside  the  clearing- 
house cities.  While  clearing-house  organizations  of  banks 
have  been  able  to  render  valuable  services  within  a  limited 
sphere  for  local  communities,  the  lack  of  means  to  secure  their 
cooperation  or  affiliation  in  broader  fields  makes  it  impossible 
to  use  these  or  similar  local  agencies  to  prevent  panics  or 
avert  calamitous  disturbances  affecting  the  country  at  large. 
These  organizations  have,  in  fact,  never  been  able  to  prevent 
the  suspension  of  cash  payments  by  financial  institutions  in 
their  own  localities  in  cases  of  emergency. 

6.  We  have  no  effective  agency  covering  the  entire  coun- 
try which  affords  necessary  facilities  for  making  domestic 
exchanges  between  different  localities  and  sections,  or  which 
can  prevent  disastrous  disruption  of  all  such  exchanges  in 
times  of  serious  trouble. 

7.  We  have  no  instrumentality  that  can  deal  effectively 
with  the  broad  questions  which,  from  an  international  stand- 
point, affect  the  credit  and  status  of  the  United  States  as 
one  of  the  great  financial  powers  of  the  world.     In  times  of 
threatened  trouble  or  of  actual  panic  these  questions,  which 
involve  the  course  of  foreign  exchange  and  the  international 
movements  of  gold,  are  even  more  important  to  us  from  a 
national  than  from  an  international  standpoint. 

8.  The  lack  of  commercial  paper  of  an  established  standard, 
issued  for  agricultural,  industrial,  and  commercial  purposes, 
available  for  investments  by  banks,  leads  to  an  unhealthy  con- 
gestion of  loanable  funds  in  great  centers  and  hinders  the 
development  of  the  productive  forces  of  the  country. 

9.  The  narrow  character  of  our  discount  market,  with  its 
limited  range  of  safe  and  profitable  investments  for  banks, 
results  in  sending  the  surplus  money  of  all  sections,  in  excess 
of  reserves  and  local  demands,  to  New  York,  where  it  is  usu- 
ally loaned  out  on  call  on  Stock  Exchange  securities,  tending 
to  promote  dangerous  speculation  and  inevitably  leading  to 


326  PLAN  FOR  MONETARY  LEGISLATION 

injurious  disturbances  in  reserves.  This  concentration  of 
surplus  money  and  available  funds  in  New  York  imposes  upon 
the  managers  of  the  banks  of  that  city  the  vast  responsibilities 
which  are  inherent  in  the  control  of  a  large  proportion  of  the 
banking  resources  of  the  country. 

10.  The  absence  of  a  broad  discount  market  in  our  sys- 
tem, taken  together  with  the  restrictive  treatment  of  reserves, 
creates  at  times  when  serious  financial  disturbances  are  an- 
ticipated a  condition  of  dependence  on  the  part  of  individual 
banks  throughout  the  country,  and  at  the  same  time  places 
the  farmers  and  others  engaged  in  productive  industries  at 
a  great  disadvantage  in  securing  the  credit  they  require  for 
the  growth,  retention,  and  the  distribution  of  their  products. 

11.  There  is  a  marked  lack  of  equality  in  credit  facilities 
between  different  sections  of  the  country,  reflected  in  less 
favored  communities,  in  retarded  development,  and  great  dis- 
parity in  rates  of  discount. 

12.  Our  system  lacks  an  agency  whose  influence  can  be 
made  effective  in  securing  greater  uniformity,  steadiness,  and 
reasonableness  of  rates  of  discount  in  all  parts  of  the  country. 

13.  We  have  no  effective  agency  that  can  surely  provide 
adequate  banking  facilities  for  different  regions  promptly  and 
on  reasonable  terms  to  meet  the  ordinary  or  unusual  demands 
for  credit  or  currency  necessary  for  moving  crops  or  for  other 
legitimate  purposes. 

14.  We  have  no  power  to  enforce  the  adoption  of  uniform 
standards  with  regard  to  capital,  reserves,  examinations,  and 
the  character  and  publicity  of  reports  of  all  banks  in  the 
different  sections  of  the  country. 

15.  We  have  no  American  banking  institutions  in  foreign 
countries.     The  organization  of  such  banks  is  necessary  for 
the  development  of  our  foreign  trade. 

16.  The  provision  that  national  banks  shall  not  make  loans 
upon  real  estate  restricts  their  power  to  serve  farmers  and 
other  borrowers  in  rural  communities. 

17.  The  provision  of  law  under  which  the  Government  acts 


PLAN  FOR  MONETARY  LEGISLATION  327 

as  custodian  of  its  own  funds  results  in  irregular  withdrawals 
of  money  from  circulation  and  bank  reserves  in  periods  of 
excessive  Government  revenues,  and  in  the  return  of  these 
funds  into  circulation  only  in  periods  of  deficient  revenues. 
Kecent  efforts  to  modify  the  Independent  Treasury  system 
by  a  partial  distribution  of  the  public  moneys  among  national 
banks  have  resulted,  it  is  charged,  in  discrimination  and  favor- 
itism in  the  treatment  of  different  banks. 

[To  remedy  these  defects  the  Commission  drafted  a  bill  for  a  "Na- 
tional Reserve  Association,"  a  bank  for  banks,  which  in  its  main 
features  bears  some  likeness  to  the  earlier  First  and  Second  Banks  of 
the  United  States,  and  to  the  great  central  banks  of  Europe.  The 
proposal  is  popularly  known  as  the  Aldrich  Plan,  because  Senator 
Aldrich  was  chairman  of  the  Commission.  The  essential  financial 
features  of  the  bill  are  here  taken  from  Senate  Document  243,  afore- 
said, pp.  43-72,  many  details  of  the  organization  and  control,  and  less 
important  expressions,  being  omitted.] 

§  1.  Charter,  capital,  location.  The  National  Reserve 
Association  of  the  United  States  ...  is  created  and  estab- 
lished for  a  term  of  fifty  years  [with]  an  authorized  capital 
equal  in  amount  to  20  per  cent,  of  the  paid-in  and  unimpaired 
capital  of  all  banks  eligible  for  membership.  .  .  .  $200,000,- 
000  of  the  capital  stock  shall  be  subscribed  and  $100,000,000 
of  its  capital  shall  be  paid  in  cash.  .  .  .  The  head  office  shall 
be  located  in  Washington,  D.  C. 

§  2.     [Corporate  powers  set  forth.] 

§  3.  Membership  of  banks.  All  national  banks,  and  all 
banks  or  trust  companies  chartered  by  the  laws  of  any  State 
of  the  United  States  or  of  the  District  of  Columbia,  complying 
with  the  requirements  for  membership  in  the  said  National 
Reserve  Association  .  .  .  may  subscribe  to  its  capital  to  an 
amount  equal  to  20  per  cent,  of  the  paid-in  and  unimpaired 
capital  of  the  subscribing  banks  and  not  more  nor  less;  .  .  . 
Fifty  per  cent,  of  the  subscriptions  .  .  .  shall  be  fully  paid  in ; 
the  remainder  .  .  .  shall  become  a  liability  of  the  subscribers, 
subject  to  call.  .  .  . 


328  PLAN  FOR  MONETARY  LEGISLATION 

[The  subscriptions  of  State  banks  or  trust  companies  are  made  sub- 
ject to  their  complying  with  conditions  substantially  the  same  as  to 
amount  of  capital  and  surplus,  percentage  of  reserves,  etc.,  and  sub- 
mission to  examinations,  as  those  imposed  upon  the  national  banks.] 

§§4-18  [These  sections  designate  in  all  needed  detail  the  plans  of 
organization  and  administration.  A  committee  of  three  Cabinet  officers 
is  designated  (§4)  to  effect  the  first  organization.  There  are  to  be 
fifteen  (or  more)  districts  with  a  branch  and  a  local  association  of 
subscribing  banks  in  each  district  (§5,  §6).  Each  local  association 
|(§7)  and  each  branch  (§8)  and  the  whole  association  (§9)  is  to  have 
a  board  of  directors,  chosen  by  a  somewhat  complex  method  of  plural 
voting,  and  representing  the  banks  and  agricultural,  commercial  and 
industrial  interests.  The  board  of  the  National  Association  is  to  have 
as  ex  officio  members  the  Secretaries  of  the  Treasury,  of  Agriculture, 
and  of  Commerce  and  Labor,  and  the  Comptroller  of  the  Currency. 
The  "governor"  of  the  Association  shall  be  selected  by  the  President 
of  the  United  States  from  a  list  (§10).  Duties  of  directors  in  organ- 
izing the  Association  are  indicated  (§11).  Shares  of  capital  stock 
in  the  Association  are  to  be  owned  not  otherwise  than  by  subscrib- 
ing banks  (§12).  Exemption  from  local  and  State  taxation  except 
upon  real  estate  (§13).  An  executive  committee  (§14)  and  a  board 
of  examination  (§15)  are  to  be  elected  by  the  Board.  Managers  of 
branches  (§16).  Organization  of  local  associations  (§17).  List  of 
banks  and  of  shares  of  stock  in  the  Association  to  be  kept  (§18). 
Several  of  these  features  (especially  §§7-10)  have  called  forth  much 
discussion  because  of  the  fear  of  centralization  of  control  over  the 
great  financial  institutions.] 

§  19.  Earnings  and  dividends.  The  earnings  of  the  Na- 
tional Eeserve  Association  shall  be  disposed  of  in  the  follow- 
ing manner:  After  the  payment  of  all  expenses  and  the 
franchise  and  other  taxes  not  provided  for  in  this  section,  the 
shareholders  shall  be  entitled  to  receive  an  annual  dividend 
of  4  per  cent,  on  the  paid-in  capital,  which  dividend  shall  be 
cumulative.  Further  annual  net  earnings  shall  be  disposed 
of  as  follows:  First,  a  contingent  fund  shall  be  created, 
which  shall  be  maintained  at  an  amount  equal  to  1  per  cent, 
on  the  paid-in  capital,  and  shall  not  exceed  in  any  event 
$2,000,000,  and  shall  be  used  to  meet  any  possible  losses. 
Such  fund  shall,  upon  the  final  dissolution  of  the  National 
Reserve  Association,  be  paid  to  the  United  States  and  shall 


PLAN  FOR  MONETARY  LEGISLATION  329 

not  under  any  circumstances  be  included  in  the  book  value  of 
the  stock  or  be  paid  to  the  shareholders.  Second,  one-half 
of  additional  net  earnings  shall  be  paid  into  the  surplus  fund 
of  the  National  Reserve  Association  until  said  fund  shall 
amount  to  20  per  cent,  of  the  paid-in  capital,  one-fourth  shall 
be  paid  to  the  United  States  as  a  franchise  tax,  and  one-fourth 
shall  be  paid  to  the  shareholders,  until  the  shareholders'  divi- 
dend shall  amount  to  5  per  cent,  per  annum  on  the  paid-in 
capital:  Provided,  That  no  such  dividends,  exclusive  of  the 
cumulative  dividends  above  provided  for,  shall  at  any  time  be 
paid  in  excess  of  5  per  cent,  in  any  one  year.  Whenever  and 
so  long  as  the  contingent  fund  has  been  provided  for  and 
the  five  per  cent,  dividend  has  been  paid  to  shareholders,  one- 
half  of  the  additional  earnings  shall  be  paid  to  the  United 
States  as  a  franchise  tax.  Whenever  and  so  long  as  the  sur- 
plus fund  of  the  National  Reserve  Association  amounts  to 
20  per  cent,  of  the  paid-in  capital  and  the  shareholders  shall 
have  received  dividends  not  exceeding  5  per  cent.,  all  excess 
earnings  shall  be  paid  to  the  United  States  as  a  franchise  tax. 
§  20.  Local  associations  to  guarantee  commercial  paper. 
Any  member  of  a  local  association  may  apply  to  such  asso- 
ciation for  a  guaranty  of  the  commercial  paper  which  it  de- 
sires to  rediscount  at  the  branch  of  the  National  Reserve  Asso- 
ciation in  its  district.  Any  such  bank  receiving  a  guaranty 
from  a  local  association  shall  pay  a  commission  to  the  local 
association,  to  be  fixed  in  each  case  by  its  board  of  directors. 
Expenses  and  losses  in  excess  of  commissions  shall  be  met  by; 
an  assessment  of  the  members  of  the  local  association  in  pro- 
portion to  the  ratio  which  their  capital  and  surplus  bears 
to  the  aggregate  capital  and  surplus  of  the  members  of  the 
local  association,  which  assessment  shall  be  made  by  its  board 
of  directors,  and  the  commission  received  for  such  guaranty, 
after  the  payment  of  expenses  and  possible  losses,  shall  be 
distributed  among  the  several  banks  of  the  local  association 
in  the  same  proportion.  A  local  association  shall  have  au- 
thority to  require  security  from  any  bank  offering  paper  for 


330  PLAN  FOR  MONETARY  LEGISLATION 

guaranty,  or  it  may  decline  to  grant  the  application.  The 
total  amount  of  guaranties  by  a  local  association  to  the  Na- 
tional Reserve  Association  shall  not  at  any  time  exceed  the 
aggregate  capital  and  surplus  of  the  banks  forming  the  guar- 
anteeing association. 

§  21.  Local  associations  and  clearing  houses.  Any  local 
association  may  by  a  vote  of  three-fourths  of  its  members  and 
with  the  approval  of  the  National  Reserve  Association,  as- 
sume and  exercise  such  of  the  powers  and  functions  of  a 
clearing  house  as  are  not  inconsistent  with  the  purposes  of 
this  act.  The  National  Reserve  Association  may  require  any 
local  association  to  perform  such  services  in  facilitating  the 
domestic  exchanges  of  the  National  Reserve  Association  as 
the  public  interests  may  require. 

§  22.  Functions  of  the  National  Reserve  Association. 
All  of  its  privileges  and  advantages  .  .  .  shall  be  equitably 
extended  to  every  bank  of  any  of  the  classes  herein  denned 
which  shall  subscribe  to  its  proportion  of  the  capital  stock 
and  shall  otherwise  conform  to  the  requirements  of  this  act. 
[Proviso,  power  of  suspending  a  bank.] 

§  23.  It  shall  be  the  principal  fiscal  agent  of  the  United 
States.  The  government  of  the  United  States  shall  ...  de- 
posit its  general  funds,  and  ...  all  receipts  of  the  Govern- 
ment, exclusive  of  trust  funds,  and  make  all  disbursements 
through  said  association  and  its  branches. 

§  24.  Its  sole  depositors  shall  be  the  government  of  the 
United  States  and  banks  owning  its  stock.  .  .  .  All  its  domes- 
tic transactions  .  .  .  shall  be  confined  to  the  Government  and 
the  subscribing  banks,  with  the  exception  of  the  purchase  or 
sale  of  Government  or  State  securities  or  securities  of  foreign 
governments  or  of  gold  coin  or  bullion. 

§  25.     It  shall  pay  no  interest  on  deposits. 

§  26.  It  may  through  a  branch  rediscount  for  and  with 
the  indorsement  of  any  bank  having  a  deposit  with  it,  notes 
and  bills  of  exchange  arising  out  of  commercial  transactions 
.  .  .  and  not  .  .  .  drawn  for  the  purpose  of  carrying  stocks, 


PLAN  FOR  MONETARY  LEGISLATION  331 

bonds,  or  other  investment  securities.  .  .  .  [Details  as  to  ma- 
turity and  amount  and  kinds  of  notes  rediscounted,  §§  27-29.] 

§  30.  It  shall  have  authority  to  fix  its  rates  of  discount 
from  time  to  time,  which  when  so  fixed  shall  be  published, 
and  shall  be  uniform  throughout  the  United  States. 

§  31.  National  banks  are  authorized  to  accept  drafts  or 
bills  of  exchange  drawn  upon  them,  having  not  more  than 
four  months  to  run,  properly  secured,  and  arising  out  of  com- 
mercial transactions.  The  amount  of  such  acceptances  out- 
standing shall  not  exceed  one-half  of  the  capital  and  surplus. 

§  32.  The  National  Reserve  Association  may  purchase 
from  a  subscribing  bank  acceptances  of  banks  or  acceptors  of 
unquestioned  financial  responsibility  arising  out  of  commer- 
cial transactions.  Such  acceptances  must  have  not  exceeding 
ninety  days  to  run,  and  must  be  of  a  character  generally 
known  in  the  market  as  prime  bills. 

§  33.  It  may  invest  in  United  States  bonds;  also  in  obli- 
gations, having  not  more  than  one  year  to  run,  of  the  United 
States  or  its  dependencies,  or  of  any  State,  or  of  foreign  gov- 
ernments. 

§  34.  It  shall  have  power,  both  at  home  and  abroad,  to 
deal  in  gold  coin  or  bullion,  to  make  loans  thereon,  and  to 
contract  for  loans  of  gold  coin  or  bullion,  giving  therefor, 
when  necessary,  acceptable  security,  including  the  hypotheca- 
tion of  any  of  its  holdings  of  United  States  bonds. 

§  35.  It  shall  have  power  to  purchase  from  its  subscrib- 
ing banks  and  to  sell,  with  or  without  its  indorsement,  checks 
or  bills  of  exchange,  arising  out  of  commercial  transactions  as 
hereinbefore  defined,  payable  in  such  foreign  countries  as  its 
board  of  directors  .  .  .  may  determine.  These  bills  of  ex- 
change must  have  not  exceeding  ninety  days  to  run,  and  must 
bear  the  signatures  of  two  or  more  responsible  parties,  of 
which  the  last  one  shall  be  that  of  a  subscribing  bank. 

§  36.  It  shall  have  power  to  open  and  maintain  banking 
accounts  in  foreign  countries  and  to  establish  agencies  in  for- 
eign countries  for  the  purpose  of  purchasing,  selling,  and 


332  PLAN  FOR  MONETARY  LEGISLATION 

collecting  foreign  bills  of  exchange,  and  it  shall  have  author- 
ity to  buy  and  sell,  with  or  without  its  indorsement,  through 
such  correspondents  or  agencies,  checks  or  prime  foreign  bills 
of  exchange  arising  out  of  commercial  transactions,  which 
have  not  exceeding  ninety  days  to  run,  and  which  bear  the 
signatures  of  two  or  more  responsible  parties. 

§  37.  [Duty  to  transfer  credit  balances,  by  mail,  tele- 
graph, or  otherwise.] 

§  38.  It  may  purchase,  acquire,  hold,  and  convey  real 
estate  for  the  following  purposes  and  for  no  other:  [Condi- 
tions specified]. 

§  39.  Reserves  of  subscribing  banks.  All  subscribing 
banks  must  conform  to  the  following  requirements  as  to  re- 
serves to  be  held  against  deposits  of  various  classes,  but  the 
deposit  balance  of  any  subscribing  bank  in  the  National  Ke- 
serve  Association  and  any  notes  of  the  National  Reserve  Asso- 
ciation which  it  holds  may  be  counted  as  the  whole  or  any  part 
of  its  required  reserve: 

First.  On  demand  deposits:  National  banks  in  different 
localities  shall  maintain  the  same  percentages  of  reserve 
against  demand  deposits  as  is  now  required  by  law,  and  the 
same  percentages  of  reserve  against  demand  deposits  shall  be 
required  of  all  other  subscribing  banks  in  the  same  localities. 

Second.  On  time  deposits :  All  time  deposits  and  moneys 
held  in  trust  payable  or  maturing  within  thirty  days  shall  be 
subject  to  the  same  reserve  requirements  as  demand  deposits 
in  the  same  locality.  All  time  deposits  and  moneys  held  in 
trust  payable  or  maturing  more  than  thirty  days  from  date 
shall  be  subject  to  the  same  reserve  requirements  as  demand 
deposits  for  the  thirty  days  preceding  their  maturity,  but  no 
reserves  shall  be  required  therefor  except  for  this  period. 
Such  time  deposits  and  moneys  held  in  trust,  payable  only  at 
a  stated  time  not  less  than  thirty  days  from  date  of  deposit, 
must  be  represented  by  certificates  or  instruments  in  writing 
and  must  not  be  allowed  to  be  withdrawn  before  the  time 
specified  without  thirty  days'  notice. 


PLAN  FOE  MONETARY  LEGISLATION  333 

§  40.  National  banks  may  loan  not  more  than  30  per  cent, 
of  their  time  deposits,  as  herein  defined,  upon  improved  and 
unencumbered  real  estate,  such  loans  not  to  exceed  50  per 
cent,  of  the  actual  value  of  the  property,  which  property  shall 
be  situated  in  the  vicinity  or  in  the  territory  directly  tribu- 
tary to  the  bank:  Provided,  That  this  privilege  shall  not 
be  extended  to  banks  acting  as  reserve  agents  for  banks  or 
trust  companies. 

§  41.  All  demand  liabilities,  including  deposits  and  cir- 
culating notes,  of  the  National  Reserve  Association  shall  be 
covered  to  the  extent  of  50  per  cent,  by  a  reserve  of  gold 
(including  foreign  gold  coin  and  gold  bullion)  or  other  money 
of  the  United  States  which  the  national  banks  are  now  au- 
thorized to  hold  as  a  part  of  their  legal  reserve:  Provided, 
That  whenever  and  so  long  as  such  reserve  shall  fall  and  re- 
main below  50  per  cent,  the  National  Reserve  Association 
shall  pay  a  special  tax  upon  the  deficiency  of  reserve  at  a  rate 
increasing  in  proportion  to  such  deficiency  as  follows:  For 
each  21/2  per  cent,  or  fraction  thereof  that  the  reserve  falls 
below  50  per  cent,  a  tax  shall  be  levied  at  the  rate  of  1^  per 
cent,  per  annum;  Provided  further,  That  no  additional  cir- 
culating notes  shall  be  issued  whenever  and  so  long  as  the 
amount  of  such  reserve  falls  below  33^  per  cent,  of  its  out- 
standing notes. 

§  42.  In  computing  the  demand  liabilities  of  the  National 
Reserve  Association,  a  sum  equal  to  one-half  of  the  amount 
of  the  United  States  bonds  held  by  the  association  which 
have  been  purchased  from  national  banks,  and  which  had 
previously  been  deposited  by  such  banks  to  secure  their 
circulating  notes,  shall  be  deducted  from  the  amount  of  such 
liabilities. 

§§  43-46.  [Details  as  to  reports  of  the  National  Reserve 
Association  and  of  the  subscribing  banks.] 

§  47.  Bank-note  issues.  All  provisions  of  law  requiring 
national  banks  to  hold  or  to  transfer  and  deliver  to  the  Treas- 
urer of  the  United  States  bonds  of  the  United  States  other 


834  PLAN  FOR  MONETARY  LEGISLATION 

than  those  required  to  secure  outstanding  circulating  notes 
and  Government  deposits  as  hereby  repealed. 

§  48.  There  shall  be  no  further  issue  of  circulating  notes 
by  any  national  bank  beyond  the  amount  now  outstanding. 
National  banks  may  maintain  their  present  note  issue,  but 
whenever  a  bank  retires  the  whole  or  any  part  of  its  existing 
issue  its  right  to  reissue  the  notes  so  retired  shall  thereupon 
cease. 

§  49.  The  National  Eeserve  Association  shall,  for  a  period 
of  one  year  from  the  date  of  its  organization,  offer  to  purchase 
at  a  price  not  less  than  par  and  accrued  interest  the  2  per 
cent,  bonds  held  by  subscribing  national  banks  and  deposited 
to  secure  their  circulating  notes.  It  shall  take  over  the  bonds 
so  purchased  and  assume  responsibility  for  the  redemption 
upon  presentation  of  outstanding  notes  secured  thereby.  It 
shall  issue,  on  terms  herein  provided,  its  own  notes  as  the 
outstanding  notes  secured  by  such  bonds  so  held  shall  be  pre- 
sented for  redemption  and  may  issue  further  notes  from  time 
to  time  to  meet  business  requirements,  it  being  the  policy  of 
the  United  States  to  retire  as  rapidly  as  possible,  consistent 
with  the  public  interests,  bond-secured  circulation  and  to  sub- 
stitute therefor  notes  ...  of  a  character  and  secured  and 
redeemed  in  the  manner  provided  for  in  this  act. 

§  50.  All  note  issues  of  the  National  Reserve  Association 
shall  at  all  times  be  covered  by  legal  reserves  to  the  extent  re- 
quired by  section  41  of  this  act  and  by  notes  or  bills  of  ex- 
change arising  out  of  commercial  transactions  as  hereinbefore 
defined  or  obligations  of  the  United  States. 

§  51.  Any  notes  of  the  National  Reserve  Association  in 
circulation  at  any  time  in  excess  of  $900,000,000  which  are 
not  covered  by  an  equal  amount  of  lawful  money,  gold  bullion, 
or  foreign  gold  coin  held  by  said  association,  shall  pay  a  spe- 
cial tax  at  the  rate  of  iy2  per  cent,  per  annum,  and  any  notes 
in  excess  of  $1,200,000,000  not  so  covered  shall  pay  a  special 
tax  at  the  rate  of  5  per  cent,  per  annum:  Provided,  That 


PLAN  FOB  MONETARY  LEGISLATION  335 

in  computing  said  amounts  ...  the  aggregate  amount  of  any 
national-bank  notes  then  outstanding  shall  be  included. 

§  52.  The  circulating  notes  of  the  National  Reserve  Asso- 
ciation shall  constitute  a  first  lien  upon  all  its  assets  and  shall 
be  redeemable  in  lawful  money  on  presentation  at  the  head 
office  of  said  association  or  any  of  its  branches.  It  shall  be 
its  duty  to  maintain  a  parity  of  value  of  its  circulating  notes 
with  the  standard  established  by  the  first  section  of  the  act  of 
March  14,  1900,  entitled  "An  act  to  define  and  fix  the  stand- 
ard of  value,  to  maintain  the  parity  of  all  forms  of  money 
issued  or  coined  by  the  United  States,  to  refund  the  public 
debt,  and  for  other  purposes. ' ' 

§  53.  The  circulating  notes  of  the  National  Reserve  Asso- 
ciation shall  be  received  at  par  in  payment  of  all  taxes,  excises, 
and  other  dues  to  the  United  States,  and  for  all  salaries  and 
other  debts  and  demands  owing  by  the  United  States  to  indi- 
viduals, firms,  corporations,  or  associations,  except  obligations 
of  the  Government  which  are  by  their  terms  specifically  pay- 
able in  gold,  and  for  all  debts  due  from  or  by  one  bank  or 
trust  company  to  another,  and  for  all  obligations  due  to  any 
bank  or  trust  company. 

§  54.  The  National  Reserve  Association  and  its  branches 
shall  at  once,  upon  application  and  without  charge  for  trans- 
portation, forward  its  circulating  notes  to  any  depositing  bank 
against  its  credit  balance. 

§  55.  United  States  bonds.  Upon  application  of  the 
National  Reserve  Association  the  Secretary  of  the  Treasury 
shall  exchange  the  2  per  cent,  bonds  of  the  United  States  bear- 
ing the  circulation  privilege  purchased  from  subscribing  banks 
for  3  per  cent,  bonds  of  the  United  States  without  the  cir- 
culation privilege,  payable  after  fifty  years  from  the  date  of 
issue.  The  National  Reserve  Association  shall  hold  the  3  per 
cent,  bonds  so  issued  during  the  period  of  its  corporate  exist- 
ence: Provided,  That  after  five  years  from  the  date  of  its 
organization  the  Secretary  of  the  Treasury  may  at  his  option 


336  PLAN  FOR  MONETARY  LEGISLATION 

permit  it  to  sell  not  more  than  $50,000,000  of  such  bonds  an- 
nually: And  provided  further,  That  the  United  States  re- 
serves the  right  at  any  time  to  pay  any  of  such  bonds  before 
maturity,  or  to  purchase  any  of  them  at  par  for  the  trustees 
of  the  postal  savings,  or  otherwise. 

§  56.  The  National  Reserve  Association  shall  pay  to  the 
Government  a  special  franchise  tax  of  iy2  per  cent,  annually 
during  the  period  of  its  charter  upon  an  amount  equal  to  the 
par  value  of  such  United  States  bonds  transferred  to  it  by  the 
subscribing  banks. 

§  57.  Banking  in  foreign  countries.  Banking  corpora- 
tions for  carrying  on  the  business  of  banking  in  foreign  coun- 
tries and  in  aid  of  the  commerce  of  the  United  States  with 
foreign  countries  and  to  act  when  required  as  fiscal  agents  of 
the  United  States  in  such  countries  may  be  formed  .  .  .  under 
prescribed  regulations,  but  shall  not  be  authorized  to  receive 
deposits  in  the  United  States  nor  transact  any  domestic  busi- 
ness not  necessarily  related  to  the  business  being  done  in  for- 
eign countries  or  in  the  dependencies  of  the  United  States. 
[Authority  and  power  conferred;  conduct  regulated.] 

§  58.  [Congress  reserves  right  to  alter  or  amend  at  the  end 
of  any  decennial  period.] 

§  59.     [Acts  inconsistent  repealed.] 


THE  TRADE  BALANCE  OF  THE  UNITED  STATES 

[AMONG  the  valuable  papers  published  by  the  National  Monetary 
Commission  is  one  of  the  foregoing  title  by  George  Paish,  editor  of 
The  Statist  (part  of  Senate  Document  579,  61st  Congress,  2d  session, 
1910,  pp.  151-213).  The  following  extracts  serve  to  epitomize  the 
argument  which  is  developed  in  much  greater  detail  and  which,  in  a 
very  convincing  way,  exposes  the  error  of  the  popular  view  that 
balances  of  accounts  for  merchandise  exports  and  imports  are  settled 
by  corresponding  gold  imports  and  exports.  The  figures  given  are 
mostly  for  the  years  1908-09.] 

On  trade  balances  [page  153].  The  term  "trade  bal- 
ance" is  generally  used  for  the  purpose  of  indicating  the 
excess  value  of  a  country's  exports  of  merchandise  over  the 
value  of  its  imports  of  merchandise  or  the  excess  value  of  a 
country's  imports  of  merchandise  over  the  value  of  its  ex- 
ports of  merchandise.  In  monetary  circles  the  term  is  em- 
ployed to  denote  the  ability  of  a  country  to  import  supplies 
of  the  precious  metals.  If  the  rate  of  exchange  of  one  coun- 
try upon  other  countries  is  at  the  level  which  permits  of  gold 
imports,  it  is  said  that  the  balance  of  trade  is  in  favor  of  the 
country  importing  the  gold.  On  the  other  hand,  if  the  rate 
of  exchange  of  any  country  is  at  a  level  which  admits  of  gold 
exports,  the  balance  of  trade  is  said  to  be  against  the  country 
exporting  the  gold.  In  the  sixteenth,  seventeenth,  and 
eighteenth  centuries  a  favorable  trade  balance  was  a  matter  of 
great  concern  to  statesmen  and  to  financiers.  At  that  time  it 
was  supposed  that  any  country  which  imported  goods  of 
greater  value  than  the  goods  it  exported  would  be  seriously 
injured  by  having  to  make  payment  in  the  precious  metals 
for  the  difference  between  the  value  of  the  goods  imported 
and  the  value  of  the  goods  exported,  and  that  any^  country; 

22  337 


338  THE  TRADE  BALANCE 

which  persisted  in  purchasing  goods  of  greater  value  than  the 
goods  it  exported  would  be  totally  drained  of  its  stock  of 
the  precious  metals  and  would  be  ruined.  The  theory  of  the 
supreme  importance  of  a  balance  of  exports  over  imports  was 
known  as  the  "Mercantile  system. "  .  .  . 

The  great  change  in  the  theory  of  commerce  that  has  taken 
place  in  modern  times  is  due  to  the  recognition  of  the  fact 
that  the  volume  of  trade  which  any  country  enjoys  quickly 
adjusts  itself  to  the  needs  of  that  country,  and  that  the 
effect  of  a  sudden  disturbing  influence  to  trade — such  as  a 
crop  failure,  labor  troubles,  etc.,  which  temporarily  reduce 
a  nation's  exporting  power — can  be  got  over  by  financial 
operations  in  the  great  international  money  markets,  and 
that  excessive  drains  of  the  precious  metals  are  not  now  to 
be  apprehended.  Experience  has  shown  that  apart  from  sud- 
den catastrophes  the  foreign  trade  of  every  country  is  of  a 
very  elastic  character,  that  the  volume  of  imports  or  of  exports 
quickly  responds  to  the  necessities  of  the  case,  and  that  no 
country  can  have  an  adverse  balance  of  trade  except  for  a 
short  time  and  as  a  consequence  of  some  unexpected  disaster 
which  temporarily  diminishes  its  power  to  make  payment  for 
goods  imported.  Even  at  such  times  countries  in  good  credit 
have  no  difficulty  in  borrowing  temporarily  or  permanently 
the  sums  required  to  settle  the  balance  due  to  other  coun- 
tries for  commodities  purchased  or  obligations  incurred  prior 
to  the  disturbing  event — a  process  which  averts  any  excessive 
denudation  of  the  stock  of  the  precious  metals  possessed  by 
the  country  experiencing  the  disaster.  .  .  . 

Lending  and  borrowing  countries  [page  169].  There  is 
practically  no  country  which  neither  exports  nor  imports 
capital  with  the  exception  of  Thibet.  .  .  .  The  chief  coun- 
tries which  supply  capital  to  other  lands  are  Great  Britain, 
Germany,  France,  Holland,  Belgium,  and  Switzerland.  .  .  . 
Great  Britain  has  about  $15,000,000,000  of  capital  invested 
abroad  and  is  adding  to  its  colonial  and  foreign  investments 
at  the  rate  of  upwards  of  $500,000,000  a  year.  Germany 


THE  TRADE  BALANCE  339 

and  France  come  next  with  investments  of  about  $8,000,000r 
000  each.  The  investments  of  Holland,  Belgium  and  Switzer- 
land are  of  much  smaller  amount,  but  are  nevertheless  con- 
siderable. The  imports  of  all  these  five  countries  largely 
exceed  their  exports  in  consequence  of  the  receipt  of  interest 
and  of  tourist  expenditures.  In  the  case  of  Great  Britain 
the  excess  of  imports  over  the  exports  is  further  largely  in- 
creased by  the  earnings  of  British  ships,  the  tonnage  of  which 
forms  so  large  a  portion  of  the  world's  international  ship- 
ping facilities.  The  fleets  of  other  countries  are  not  much 
more  than  sufficient  to  take  care  of  their  own  trade  in  the 
aggregate;  indeed,  in  most  cases  they  are  insufficient  for 
this  purpose,  and  the  deficiency  is  made  good  by  the  British 
mercantile  marine. 

The  principal  countries  whose  exports  exceed  their  imports 
in  consequence  of  the  large  amount  of  interest  they  have  to 
pay  on  capital  borrowed  from  other  lands  are  the  United 
States,  the  Australasian  colonies  of  Great  Britain,  British 
India,  Argentina,  Brazil,  and  Mexico.  Several  other  coun- 
tries whose  imports  now  exceed  their  exports  will  eventually 
come  into  this  category.  At  the  present  time  Canada's  im- 
ports largely  exceed  her  exports  in  consequence  of  the  vast 
amount  of  capital — about  $200,000,000  a  year — which  she  is 
borrowing  from  other  lands — almost  entirely  from  Great 
Britain.  In  the  course  of  time  the  Canadian  indebtedness 
to  other  countries  and  the  expenditure  of  her  tourists,  etc., 
will  be  so  great  that  her  exports  will  exceed  her  imports, 
although  large  amounts  of  capital  will  continue  to  flow  into 
the  country  each  year.  Of  course  Canada  will  have  no  dif- 
ficulty in  making  these  interest  payments,  having  regard  to 
the  rapid  growth  in  the  annual  amount  of  wealth  created  by 
means  of  the  capital  she  is  importing.  China,  Japan,  and 
Chile  are  other  instances  of  the  inflow  of  large  amounts  of 
foreign  capital.  .  .  . 

Europe's  capital  investments  in  the  United  States  [pages 
174-176].  Great  Britain  possesses  about  $3,500,000,000  of 


340  THE  TRADE  BALANCE 

American  securities.  .  .  .  The  French  investments  in  the 
United  States,  including  the  Pennsylvania  Railroad  and  other 
loans  placed  in  Paris  since  1902,  amount  to  nearly  $500,000,- 
000.  .  .  .  German  bankers  place  the  amount  of  the  German 
investments  in  American  securities  at  about  $1,000,000,000. 
The  amount  of  Dutch  capital  in  the  United  States  is  about 
$750,000,000.  American  securities  are  also  held  in  Belgium, 
Switzerland,  and  in  other  countries.  In  the  aggregate  the 
amount  of  European  capital  invested  in  " permanent"  se- 
curities in  the  United  States  is  approximately  $6,000,000,000. 

Beyond  the  fixed  capital  invested  by  Europe  in  the  United 
States,  account  has  to  be  taken  of  the  floating  loans  made  by 
Europe  to  America.  These  floating  loans  are  mainly  incurred 
in  the  spring  and  summer  months  in  anticipation  of  the  pro- 
duce shipments  from  the  States  in  the  fall  months  and  they 
are  then  largely  liquidated.  The  amount  of  the  floating  debt 
of  the  United  States  to  Europe  in  the  form  of  produce  bills, 
finance  bills,  loans  against  securities,  overdrafts,  etc.,  averages 
about  $400,000,000,  reaching  a  larger  sum  in  July  and  early 
August  and  falling  to  a  much  lower  sum  at  the  end  of  De- 
cember. The  rate  of  interest  paid  upon  this  floating  debt  in 
so  far  as  it  consists  of  produce  bills  is  a  very  low  one,  the 
rate  of  interest  charged  on  this  class  of  loan  being  less  than 
that  on  any  other  kind  of  security. 

Including  both  the  fixed  investments  and  the  floating  loans, 
the  amount  of  capital  borrowed  by  the  United  States  from 
other  countries  is  about  $6,500,000,000,  the  annual  interest 
charge  upon  which  is  about  $300,000,000. 

An  offset  to  the  large  amount  of  capital  invested  in  the 
United  States  is  the  capital  invested  by  American  citizens  in 
other  countries,  more  especially  in  Mexico,  Canada,  in  the 
Southern  American  States,  in  the  Philippines,  in  Cuba,  etc. 
.  .  .  The  amount  of  American  capital  invested  in  other  lands 
in  this  manner  both  publicly  and  privately  is  probably  $1,- 
500,000,000  yielding  an  income  of  about  $75,000,000  a  year. 
By  deducting  the  interest — $75,000,000 — received  upon 


THE  TRADE  BALANCE  341 

American  capital  placed  abroad  from  the  interest — $300,- 
000,000 — which  the  United  States  pay  upon  capital  supplied 
to  them  by  other  lands,  I  arrive  at  a  net  payment  of  $225,- 
000,000  by  the  United  States  to  other  countries  for  interest 
and  dividends  upon  capital.  This  sum  the  United  States  has 
to  remit  each  year  by  exports  of  produce. 

The  value  to  the  United  States  of  loans  of  capital  by  other 
lands  [page  177].  The  capital  obtained  by  America  from 
other  lands,  mainly  from  Great  Britain,  was  chiefly  for  the 
purpose  of  extending  and  improving  the  railway  system  of 
the  country.  No  one  can  survey  the  remarkable  growth  in  the 
production,  wealth,  and  population  of  the  United  States  with- 
out expressing  his  appreciation  of  the  great  part  played 
by  railway  extensions  in  bringing  about  that  growth.  The 
extension  of  railways  alone  made  it  possible  to  bring  into 
cultivation  the  vast  tracts  of  virgin  lands  that  are  now  under 
the  plow.  Without  railways  the  United  States  could  not  now 
produce  annually  agricultural  wealth  of  the  value  of  about 
$8,000,000,000.  Again  the  extension  of  railways  alone  made 
it  possible  to  reach  and  to  develop  upward  of  $2,000,000,000 
of  mineral  wealth  per  annum.  It  is  the  railways  that  enable 
the  people  of  the  United  States  to  reach  and  to  obtain  for 
their  use  the  vast  quantity  of  lumber  annually  cut  from  the 
forests.  Lastly,  the  immense  manufacturing  industries  of  the 
States  which  now  distribute  over  $3,000,000,000  in  wages 
could  never  have  been  built  up  but  for  the  construction  of 
railways. 

The  provision  of  some  $6,500,000,000  of  capital  to  the 
United  States  by  older  countries,  mainly  for  railway  construc- 
tion, has  enabled  the  American  people  to  devote  their  rapidly 
growing  savings  to  the  building  and  furnishing  of  homes,  to 
the  equipment  of  manufactories,  to  fitting  out  retail  estab- 
lishments, and  to  other  purposes  to  a  much  greater  extent  than 
otherwise  would  have  been  possible,  and  in  this  way  the  for- 
eign capital  has  greatly  accelerated  the  growth  of  population, 
production,  and  wealth.  By  the  use  of  the  $6,500,000,000  of 


342  THE  TRADE  BALANCE 

capital  obtained  from  other  countries  the  annual  production 
of  wealth  by  the  United  States  has,  I  calculate,  been  increased 
to  a  nearly  corresponding  extent  and  the  accumulated  wealth 
of  the  country  has  been  increased  by  many  times  the  amount  of 
the  capital  borrowed.  The  additional  value  given  to  land 
alone  by  the  construction  of  railways  is  so  vast  and  so  ap- 
parent that  it  needs  no  demonstration.  The  increase  in  the 
annual  production  of  wealth  by  the  United  States  rendered 
possible  by  the  importation  of  capital  has  been  at  least  twenty 
times  greater  than  the  sum  paid  for  interest.  The  investment 
of  this  capital  by  the  older  countries  in  the  United  States  has 
thus  brought  advantages  which  cannot  easily  be  exag- 
gerated. .  .  . 

Tourist  and  other  expenditures  [page  179].  The  number 
of  American  citizens  visiting  other  lands  in  the  course  of  the 
year  is  now  upward  of  200,000.  The  data  I  have  been  able 
to  obtain  as  to  the  expenditures  of  these  tourists  shows  that 
the  sum  expended  by  them  approximates  to  $1,000  per  per- 
son. This  sum  includes  merely  the  passage  money  and  the 
sums  expended  in  other  countries  for  food,  transportation,  and 
other  miscellaneous  expenditures.  It  does  not  include  the 
sums  expended  upon  works  of  art,  jewelry,  clothing,  etc., 
which  are  declared  at  the  customs  and  are  included  in  the 
value  of  the  goods  imported  into  the  United  States.  In  the 
aggregate,  tourist  expenditures  for  the  purposes  I  have  men- 
tioned reach  a  total  of  about  $200,000,000.  On  the  other 
hand,  a  number  of  foreign  tourists  visit  the  United  States 
and  their  expenditures  should  be  placed  against  those  of 
American  citizens.  .  .  .  Apparently  the  number  of  visitors, 
other  than  immigrants  passing  through  to  Canada,  was  about 
30,000.  The  expenditures  of  visitors  to  the  United  States 
may  be  taken  at  about  $1.000  per  person,  excluding  all  ship- 
ping transportation,  or  an  aggregate  sum  of  visitors'  ex- 
penditures in  the  United  States  of  $30.000,000.  On  balance, 
therefore,  the  United  States  has  to  pay  to  other  countries 


THE  TRADE  BALANCE  343 

a  sum  of  about  $170,000,000  a  year  to  cover  tourist  expen- 
ditures. .  .  . 

[Page  182]  For  all  practical  purposes  I  calculate  that  the 
money  brought  into  the  country  by  immigrants  about  coun- 
terbalances the  money  taken  out  of  the  country  by  emigrants 
returning  to  their  native  lands  and  by  '  *  other  than  cabin  pas- 
sengers "  visiting  other  countries. 

Remittances  to  friends.  The  great  prosperity  of  the 
United  States  enables  many  of  its  citizens  who  have  come 
from  other  lands  to  make  gifts  of  large  sums  of  money  in 
the  aggregate  to  friends  in  the  old  countries.  The  remittance 
of  this  money  means  that  the  United  States  has  to  send  con- 
siderable quantities  of  produce  abroad  for  which  there  is  no 
corresponding  item  on  the  import  side  of  the  account,  as  the 
produce  goes  for  the  purpose  of  providing  the  funds  neces- 
sary to  cash  the  postal  money  orders  and  other  drafts  re- 
mitted to  friends.  The  amount  of  these  remittances  is  ex- 
ceedingly difficult  to  calculate,  but  that  it  is  large  every  one 
admits.  .  .  . 

With  the  data  at  my  disposal  I  do  not  feel  justified  in 
placing  the  amount  of  money  remitted  by  American  citizens 
to  friends  in  other  countries  at  a  larger  figure  than  $150,000,- 
000.  This  is  still  a  very  large  sum,  and  is  a  factor  of  very 
great  importance  in  calculating  the  trade  balance  of  the 
United  States  and  the  amount  of  produce  which  has  to  be 
remitted  for  various  purposes  other  than  to  pay  for  goods 
imported. 

Freights  [page  186].  The  United  States  possesses  a  mer- 
cantile marine  large  enough  to  convey  but  a  small  portion  of 
the  produce  they  export  and  import,  and  considerable  pay- 
ments have  to  be  made  for  shipping  services.  In  1907-8 
the  imports  into  the  United  States  by  sea  were  valued  at  $1, 
123,000,000.  Of  this  amount  $152,000,000,  or  13.5  per  cent, 
was  carried  in  American  vessels  and  $971,000,000,  or  86.5 
per  cent.,  in  foreign  vessels.  In  the  same  year  the  exports 


344  THE  TRADE  BALANCE 

from  the  United  States  were  valued  at  $1,670,000,000,  of 
which  amount  the  produce  conveyed  in  American  vessels  was 
valued  at  $120,000,000,  representing  a  proportion  of  only 
7.2  per  cent,  and  the  balance  of  $1,550,000,000,  or  93.8  per 
cent.,  was  conveyed  in  foreign  vessels.  The  sum  which  the 
United  States  had  to  pay  to  other  lands  for  marine  trans- 
portation is  much  smaller  than  is  usually  calculated.  .  .  . 
After  taking  all  these  factors  into  consideration  I  calculate 
that  the  net  sum  which  the  United  States  pays  to  other  coun- 
tries for  the  transportation  of  merchandise  is  about  $25,000,- 
000  per  annum.  Payment  of  this  sum  has  also  to  be  re- 
mitted to  other  lands  by  exports  of  produce.  .  .  . 

Insurance  [page  190].  A  large  amount  of  fire  insurance 
is  written  each  year  in  the  United  States  by  English  and 
other  offices  and  the  sums  payable  to  those  officers  in  respect 
of  insurance  reaches  a  considerable  figure.  On  the  other 
hand,  the  fire  losses  of  foreign  officers  in  the  United  States 
are  heavy  and  the  profit  which  alone  accrues  to  other  coun- 
tries is  not  a  large  item,  at  any  rate  it  has  not  been  a  large 
item  in  the  recent  past.  On  the  other  hand,  American  life 
assurance  offices  transact  a  fairly  large  business  in  foreign 
countries.  .  .  .  On  balance,  if  all  kinds  of  insurance  and  as- 
surance are  combined,  America  probably  has  to  pay  very  little 
to  other  lands  and  the  factor  of  insurance  in  calculating  the 
trade  balance  may  consequently  be  ignored. 

Summary  of  remittances  for  interest;  tourist  expend- 
itures, gifts  to  friends,  and  freight  charges.  Thus  I  arrive 
at  the  conclusion  that  the  United  States  have  on  balance  to  pay 
other  countries  a  net  sum  ...  of  about  $595,000,000  for  pur- 
poses other  than  for  the  purchase  of  goods  from  other  coun- 
tries. In  other  words,  the  exports  of  merchandise,  gold,  and 
silver  from  the  United  States  must  exceed  the  aggregate  value 
of  the  merchandise  gold  and  silver  imported  by  nearly  $600,- 
000,000  in  order  that  payment  may  be  made  for  interest,  tour- 
ist expenditures,  etc.  That  is  to  say,  America  requires  an 
excess  of  exports  over  imports  of  nearly  $600,000,000  per  an- 


THE  TRADE  BALANCE  845 

num.  in  order  to  settle  her  trade  balance.  If  she  has  a  larger 
balance  of  exports  over  imports  than  this  figure,  she  is  repaying 
a  portion  of  her  obligations  to  other  lands.  If  she  has  less  than 
this  sum,  she  is  borrowing  additional  capital  from  other  lands. 
It  should,  however,  be  clearly  understood  that  this  amount  is 
subject  to  wide  fluctuations,  and  is  by  no  means  a  hard  and  fast 
obligation.  .  .  .  Taking  all  these  circumstances  into  account, 
I  calculate  that  in  a  year  of  depression  the  obligation  of  the 
United  States  to  other  countries  for  interest,  tourist  expendi- 
tures, remittances  to  friends,  freight,  etc.,  is  about  $500,000,- 
000  and  that  in  years  of  normal  trade  activity  it  is  about 
$600,000,000. 

Perhaps  the  situation  will  be  more  clearly  realized  if  I  set 
it  out  in  tabular  form: 

FOREIGN  TBADE  OP  THE  UNITED  STATES,  1908-9. 
MERCHANDISE: 
Exports : 

Domestic     $1,638,000,000 

Foreign     25,000,000 


Total  1,663,000,000 

Imports    1,312,000,000 

Excess  of  merchandise  ex- 
ports over  imports $351,000,000 

GOLD: 

Exports    92,000,000 

Imports    44,000,000 

Excess    of    gold    exports 

over  imports 48,000,000 

SILVER: 

Exports    56,000.000 

Imports    44,000,000 

Excess  of  silver  exports 

over  imports 12,000,000 

Total  excess  of  mer- 
chandise, gold,  and  sil- 
ver exports  over  im- 
ports  $411,000,000 


846  THE  TRADE  BALANCE 

REMITTANCES  FOB  INTEEEST, 
ETC.: 

Interest  i    $250,000,000 

Tourist  expenditures   170,000,000 

Remittances  to  friends 150,000,000 

Freights    25,000,000 

Total  remittances $595,000,000 

Excess  of  sum  remitted 
for  interest,  tourists, 
to  friends,  and  for 
freights  over  trade  bal- 
ance   $184,000,000. 

1  [A  discrepancy  appears  here ;  for  above  the  interest  payable  abroad 
is  put  at  $300,000,000  and  that  coming  from  abroad  at  $75,000,000,  leav- 
ing a  balance  of  $225,000,000  payable.     ED.] 

2  [The  writer  does  not  set   forth  the  debits   and   credits   entering  to 
produce  this  balance,  but  implies  that  these  items  are  about  in  propor- 
tion to  the  value  of  goods  carried,  $2,521,000,000  by  foreign  and  $272,- 
000,000  by  American  vessels,  or  about  90.3  per  cent,  and  9.7  per  cent,  of 
the  total.     Proportional  freights  would  be  $28,000.000  to  foreigners,  and 
$3,000,000  to  American  shipowners,  to  give  a  balance  of  $25,000,000. 
ED.] 


SOME  FINDINGS  ON  WOOL 

[In  the  tariff  act  of  August  5,  1909,  the  President  of  the  United 
States  was  authorized  to  supply  "persons"  "to  secure  information" 
regarding  the  working  of  the  tariff  laws.  He  appointed  a  "Tariff 
Board"  of  five  members,  with  H.  C.  Emery,  professor  of  economics  in 
Yale  University,  as  Chairman.  The  Board  has  made  reports  on  the 
Pulp  and  news-print  paper  industry  (preliminary)  Feb.,  1911,  and 
(another  report)  May,  1911;  on  Wool  and  manufactures  of  wool 
(Schedule  K  of  the  tariff  of  1909)  Dec.  20,  1911;  on  Chemicals,  oils 
and  paints  (Schedule  A)  Feb.  7,  1912;  and  on  Cotton  manufactures 
March,  1912.  The  report  on  Wool,  the  most  voluminous  of  these, 
contains  1280  pages  of  painstaking  and  detailed  information.  The 
main  findings  of  the  investigation  are  compressed  in  the  letter  of 
submittal  to  the  President,  from  which  we  here  extract  nearly  one- 
half,  retaining  the  portions  dealing  with  costs  and  prices,  but  omitting 
the  discussion  of  tariff  duties.] 

Wool  costs  [page  10].  The  result  of  the  raw-wool  in- 
vestigation establishes  the  fact  that  it  costs  more  to  grow 
wool  in  the  United  States  than  in  any  other  country ;  that  the 
merino  wools  required  in  such  great  volume  by  our  mills 
are  the  most  expensive  of  all  wools  produced;  that  the  high- 
est average  cost  of  production  of  such  wool  in  the  world  is  in 
the  State  of  Ohio  and  contiguous  territory;  and  that  the 
lowest  average  cost  on  similar  wool  is  in  Australia. 

It  is  not  possible  to  state  in  exact  terms  the  actual  cost 
of  producing  a  pound  of  wool  considered  by  itself,  for  the 
simple  reason  that  wool  is  but  one  of  two  products  of  the 
same  operation. 

That  is  to  say,  flocks  produce  both  fleeces  and  mutton — 
products  entirely  dissimilar  in  character  and  yet  produced  as 
the  result  of  the  same  expenditure  for  forage  and  for  labor. 
The  board  has  deemed  it  best,  therefore,  for  the  purpose  of 

347 


348  SOME  FINDINGS  ON  WOOL 

this  inquiry,  to  treat  fleeces  as  the  sole  product  and  charge 
up  against  their  production  the  entire  receipts  from  other 
sources.  This  method  gives  an  accurate  return  so  far  as  the 
general  results  of  flock  maintenance  are  concerned;  results 
which  are  comparable  as  between  various  sheep-growing  re- 
gions. 

In  order  that  results  from  the  different  sections  and  from 
different  countries  might  be  more  comparable,  the  item  of  in- 
terest on  investment — which  varies  from  4  to  6  per  cent,  in 
Australia  and  from  8  to  10  per  cent,  in  our  Western  States 
— was  left  for  consideration  in  connection  with  profits.  For 
a  similar  reason  the  actual  production  cost  of  harvested  crops 
fed  to  flocks  was  used  instead  of  the  market  value  of  same. 
On  this  account  the  expense  charges  shown  are  materially 
lower  than  those  commonly  quoted  in  the  industry. 

Figured  in  this  manner,  the  board  finds : 

That  after  crediting  the  flock  with  receipts  from  all  sources 
other  than  wool,  the  latter  product,  in  the  case  of  the  fine 
merino  wools  of  the  United  States,  is  going  to  market  with  an 
average  charge  against  it  of  not  less  than  12  cents  per  pound, 
not  including  interest  on  the  investment. 

That  the  fine  wools  of  the  Ohio  region  are  sold  bearing  an 
average  charge  for  production  of  19  cents  per  pound. 

That  in  the  States  east  of  the  Missouri  River  wool  produc- 
tion is  incidental  to  general  farming.  Here  producers,  with 
the  exception  of  certain-named  districts,  lay  more  stress 
upon  the  output  of  the  mutton  than  of  wool,  and  in  such  cases 
the  receipts  from  the  sale  of  sheep  and  lambs  ordinarily  cover 
the  flock  expense,  leaving  the  wool  for  profit.  The  position 
of  the  fine-wool  producers,  however,  not  only  of  the  Ohio  re- 
gion, but  of  the  far  West,  is  radically  different. 

That  in  the  western  part  of  the  United  States,  where  about 
two-thirds  of  the  sheep  of  the  country  are  to  be  found,  the 
"fine"  and  "fine  medium"  wools  carry  an  average  charge  of 
at  least  11  cents  per  pound,  interest  not  included. 

That  if  account  is  taken  of  the  entire  wool  production  of  the 


SOME  FINDINGS  ON  WOOL  349 

country,  including  both  fine  and  coarse  wools,  the  average 
charge  against  the  clip  is  about  9y2  cents  per  pound. 

That  in  South  America  the  corresponding  charge  is  be- 
tween 4  and  5  cents  per  pound. 

That  in  New  Zealand  and  on  the  favorably  situated  runs 
of  Australia  it  seems  clear  that  at  the  present  range  of  values 
for  stock  sheep  and  mutton  the  receipts  from  other  sources 
than  wool  are  carrying  the  total  flock  expense.  So  that  taking 
Australasia  as  a  whole  it  appears  that  a  charge  of  a  very  few 
cents  per  pound  lies  against  the  great  clips  of  that  region  in 
the  aggregate.  While  the  board  cannot  undertake  to  name  an 
exact  figure  in  that  case,  it  is  certain  that  the  Australasian 
costs  at  large  fall  materially  below  the  average  South 
American. 

That  in  the  Western  United  States  the  capitalization  per 
head  of  sheep  (inclusive  of  land)  is  $5.30  upon  which  a  gross 
profit  of  6.2  per  cent,  was  realized  during  the  twelve  months 
under  review.  The  interest  rate  in  that  region  ranges  from 
8  to  10  per  cent,  per  annum. 

That  the  labor,  forage,  and  necessary  miscellaneous  ex- 
penses in  the  Western  United  States  exceed  $2  per  head  per 
annum  as  against  an  estimated  cost,  covering  the  same  ele- 
ments of  expense,  of  less  than  $1  in  Australia  and  about  $1.15 
per  head  in  South  America.  .  .  .  [Here  are  discussed  wool 
duties  and  their  effects.] 

Relative  prices  [page  14].  On  the  other  hand,  prices  in 
this  country  on  the  fabrics  just  referred  to  are  not  increased 
by  the  full  amount  of  the  duty.  A  collection  of  representative 
samples  was  made  in  England  of  goods  ranging  from  those 
which  cannot  be  imported  at  all  to  those  which  are  imported 
continually.  These  were  then  matched  with  a  collection  of 
samples  of  American-made  cloths  which  were  fairly  com- 
parable, and  the  mill  prices  compared  for  the  same  rate.  It 
is  found  that  on  goods  entirely  excluded  the  nominal  rates 
of  duty  would  reach  an  ad  valorem  rate  of  150  or  even  over 
200  per  cent.,  but  that  the  American  fabric  is  actually  sold  in 


350  SOME  FINDINGS  ON  WOOL 

the  market  at  from  only  60  to  80  per  cent,  higher  than  similar 
goods  sold  abroad. 

On  sixteen  samples  of  foreign  goods,  for  instance,  none 
of  which  are  imported,  the  figures  are  as  follows: 

Total  of  foreign  prices $  41.84 

Duties  which  would  have  been  assessed  had  they  been 

imported 76.90 

Foreign  price,  plus  the  duty,  if  imported 118.74 

Actual  domestic  price  of  similar  fabrics 69.75 

Thus,  though  the  nominal  duties  on  such  fabrics  equal  184 
per  cent.,  the  actual  excess  of  the  domestic  price  over  the 
foreign  price  on  similar  fabrics  of  this  kind  is  about  67  per 
cent.  This  is  the  result  of  domestic  competition. 

At  the  present  time  the  industry  in  general  is  on  a  compet- 
itive basis.  Certain  specialities  may  be  produced  in  limited 
quantities  by  particular  firms  which  cannot  be  duplicated 
successfully  by  their  competitors.  This  might  be  the  result 
of  secret  processes  or  of  some  special  skill  in  designing  or 
finishing.  This  may  mean  a  wide  margin  of  profit  per  unit 
of  product  in  individual  cases.  It  should  also  be  noted  that 
even  in  the  case  of  standard  goods  the  industry  is  one  pecul- 
iarly dependent  on  fashion,  and  the  manufacturer  who 
happens  to  succeed  in  anticipating  the  shifting  public  demand 
may  sell  his  goods  upon  a  wide  margin  over  the  cost  of  manu- 
facture and  make  large  profits.  Under  ordinary  circum- 
stances the  average  manufacturer  will  find  that  he  can  sell 
a  part  of  his  output  with  a  good  margin  of  profit,  and  that 
another  part  which  does  not  meet  the  public  demand  will  have 
to  be  sold  close  to  the  cost  price  or  even  below. 

As  to  the  productive  capacity  of  the  country  in  cloth-mak- 
ing to  meet  the  domestic  demand,  there  is  at  the  present  time 
no  indication  of  any  lack  of  adequate  equipment.  It  is  true 
that  some  years  ago  a  greatly  increased  demand  for  worsted 
fabrics,  assisted  by  the  high  tariff  on  worsted  goods  and  their 
by-products,  made  the  manufacture  of  such  goods  very  prof- 
itable and  the  investment  alluring,  but  this  led  to  a  rapid 


SOME  FINDINGS  ON  WOOL  351 

increase  of  worsted  machinery  in  this  country  and  the  build- 
ing of  great  modern  mills  in  rapid  succession  in  various  parts 
of  the  East.  A  very  considerable  part  of  this  increase  was 
due  to  the  inflow  of  foreign  capital  and  the  transfer  of  ex- 
perienced cloth  manufacturers  from  other  countries.  The 
result  has  been  a  great  increase  in  competition. 

Relative  costs  of  manufacturing.  The  cost  of  manufac- 
turing woolen  and  worsted  yarns  and  cloth  in  the  United 
States  is  much  higher  than  in  Europe.  The  main  elements 
of  cost  of  production  are  cost  of  plant,  material,  and  labor. 

The  cost  of  erecting  and  equipping  both  woolen  and 
worsted  mills  is  much  higher  in  this  country  than  in  England. 
The  cost  of  erecting  and  equipping  a  woolen  mill  is  about 
45  per  cent,  greater.  The  same  is  true  of  the  weaving  de- 
partment of  a  worsted  mill  using  American  machinery. 

The  excess  in  cost  in  the  case  of  worsted  spinning  is  greater, 
as  most  of  the  machinery  is  imported.  This  pays  a  duty  of 
45  per  cent,  ad  valorem,  and  to  this  must  be  added  charges 
for  packing,  freight,  etc.,  which  makes  the  foreign  machine 
cost  70  per  cent,  over  or  more  in  this  country  than  abroad. 
Nor  does  this  include  the  cost  of  erection,  as  does  the  price 
to  the  English  manufacturer.  The  same  is  true  of  weaving 
machinery  when  imported. 

The  material  is  increased  in  price  by  the  duty  on  raw 
wool.  The  manufacturer  who  imports  his  wool  must  pay  the 
full  amount  of  the  duty,  and  this  means  either  additional 
working  capital  or  an  additional  interest  charge  to  be  paid. 
Wools  grown  in  the  United  States  are  increased  in  value  by 
the  duty,  but  not  by  the  full  extent  of  the  duty. 

Wages  are  much  higher  in  the  United  States,  but  wages  are 
in  themselves  no  necessary  indication  of  relative  cost  of  pro- 
duction. Frequently  it  is  found  that  high  wages  and  low 
labor  costs  go  together.  The  question  at  once  arises  whether 
the  labor  in  American  woolen  and  worsted  manufacturing  is 
more  efficient  than  such  labor  abroad,  or  whether  by  more 
efficient  management  or  greater  speed  in  machinery  the 


352  SOME  FINDINGS  ON  WOOL 

American  manufacturer  is  able  to  get  a  larger  product  per 
operative  in  proportion  to  the  difference  in  wages. 

It  appears  that  this  particular  industry  is  one  in  which 
the  high  elements  of  costs  in  this  country  are  not  in  general 
offset  by  any  particular  advantage  or  by  any  marked  supe- 
riority in  the  efficiency  of  labor.  To  a  certain  extent,  in  fact, 
European  countries  have  the  advantage  of  us  in  this  latter 
regard.  In  the  centers  of  the  industry  abroad  there  is  an 
adequate  supply  of  labor  which  has  been  trained  for  genera- 
tions in  this  one  industry.  In  the  United  States  a  consider- 
able portion  of  the  labor  is  found  to  be  of  unskilled 
immigrants  with  no  previous  experience  in  manufacture ;  and 
in  certain  centers  this  population  is  of  a  very  fluctuating 
kind,  and  the  manufacturer  is  obliged  continually  to  break 
in  a  new  set  of  inexperienced  operatives. 

The  American  tendency  to  secure  the  maximum  output  is 
noticeable  in  some  cases,  but  comparing  this  country  with 
England,  at  least,  it  may  be  said  that  the  possibilities  of 
speed  have  been  practically  reached  in  the  latter  country.  So 
far  as  worsted  spinning  is  concerned,  the  best  mills  in  this 
country  seem  to  be  able  to  operate  with  fewer  operatives  per 
machine  and  to  get  a  greater  product  per  operative  than  in 
some  European  countries,  but  if  this  means  a  sacrifice  of 
quality  of  product  to  output  it  is  not  really  a  decrease  in 
cost.  Looms  in  the  Bradford  district  run,  on  the  whole,  at  a 
higher  rate  of  speed  than  do  looms  in  the  United  States. 

Furthermore,  there  is  no  superiority  in  American  machin- 
ery over  foreign  machinery.  As  a  matter  of  fact,  a  large 
amount  of  foreign  machinery  is  used  in  this  country,  and  in 
the  worsted  mills  covered  by  the  investigation  into  machine 
efficiency  87  per  cent,  of  all  the  machinery,  from  the  scour- 
ing of  raw  wool  through  to  the  finished  yarn,  was  imported. 
Only  22.9  per  cent,  of  looms  were  imported. 

It  may  be  said,  then,  that,  taking  the  industry  as  a  whole, 
the  American  manufacturer  practically  has  no  advantage  in 
efficiency  of  labor  and  equipment  over  his  foreign  competitor, 


SOME  FINDINGS  ON  WOOL  353 

although  this  statement  is  subject  to  exceptions  in  the  case 
of  particular  processes  at  particular  mills.  On  certain 
specialties  the  largest  and  most  efficient  American  mills  are 
able  by  skilful  organizations  materially;  to  reduce  the  dif- 
ference in  cost. 

Detailed  figures  as  to  relative  costs  of  production  are  given 
in  Part  III  of  the  report.  Roughly  summarized  they  may 
be  expressed  as  follows: 

Tops.  The  difference  in  the  cost  of  turning  wool  into 
tops  in  this  country  and  England  varies  with  the  quality  of 
the  tops.  Considering  all  grades,  it  may  be  stated  that  80 
per  cent,  presents  a  rough  approximation  of  the  excess  of 
the  American  cost  over  the  English.  This,  of  course,  does 
not  mean  80  per  cent,  of  the  value  of  the  tops,  but  merely 
80  per  cent,  of  the  conversion  cost.  The  cost  of  conversion 
in  the  case  of  tops  is  in  any  case  but  a  few  cents  and  but  a 
small  fraction  of  the  total  value  of  the  product,  including 
material.  The  charges  for  commission  combing  in  the  two 
countries  vary  about  60  per  cent.  The  reason  for  the  di- 
vergence of  the  cost  figures  from  the  commission  charges  is 
explained  in  the  report. 

Worsted  yarns.  The  cost  of  producing  yarns  varies  in 
different  countries  according  to  particular  qualities  and 
methods.  In  England  the  method  of  frame  spinning  is  the 
more  common,  and  on  the  Continent  mule  spinning.  The 
latter  is  the  more  expensive  process.  Comparing  frame  spin- 
ning in  England  with  frame  spinning  in  the  United  States 
— which  is  the  common  method  here — it  may  be  said  that  al- 
though there  are  wide  variations  in  both  countries  from  mill 
to  mill,  the  conversion  cost  for  the  same  quality  and  count 
of  yarns  in  the  United  States  is  about  twice  that  in  England. 
;The  difference  in  the  cost  between  the  United  States  and 
Germany  is  not  so  great. 

This  refers  to  the  mere  cost  of  turning  tops  into  yarn, 
and  of  course  does  not  mean  that  the  difference  in  cost  is 
equal  to  100  per  cent,  of  the  foreign  selling  value.  The 


354  SOME  FINDINGS  ON  WOOL 

foreign  conversion  cost  of  yarn  from  tops,  except  in  the  case 
of  the  finest  yarns,  is  normally  less  than  20  per  cent,  of  the 
total  market  value  of  the  yarn.  Care  should  be  taken  not  to 
confuse  the  ratio  between  manufacturing  costs  and  the  ratio 
between  total  values,  including  cost  of  raw  material. 

Woolen  and  worsted  industry.  The  difference  in  manu- 
facturing cost  here  and  abroad  of  woolen  and  worsted  fabrics 
(from  yarn  to  finished  cloth)  varies  greatly,  according  to  the 
character  of  the  fabrics.  The  main  processes  included  are 
weaving,  finishing,  and  dyeing.  The  figures  of  the  board 
show  that  the  cost  of  turning  yarn  into  cloth  in  the  United 
States  compared  with  England  is  all  the  way  from  60  per 
cent,  to  170  per  cent,  higher,  according  to  the  character 
of  the  fabric.  For  a  great  variety  of  fabrics  the  American 
conversion  cost  is  from  100  to  150  per  cent,  greater  than  the 
English  cost.  This  is  further  substantiated  by  the  fact  that 
the  weaving  scales  per  yard  of  product  in  the  two  countries 
vary  in  almost  exactly  the  same  proportions. 

The  difference  in  cost  of  manufacturing  in  France  and  the 
United  States  is  found  to  be  very  close  to  the  difference  be- 
tween England  and  the  United  States.  On  the  other  hand, 
the  difference  in  the  cost  of  the  manufacture  in  the  United 
States  and  Germany  is  somewhat  less. 

Further,  it  should  be  pointed  out  that  the  statement  that 
the  difference  in  the  cost  of  manufacturing  cloth  is  100  per 
cent,  or  more  does  not  mean  100  per  cent,  of  the  market 
value  of  the  cloth.  It  merely  means  that,  given  the  same 
yarn,  the  cost  of  weaving  and  finishing  in  this  country  is 
generally  somewhat  more  than  double  that  in  England.  It  is 
impossible  to  express  this  difference  in  relation  to  the  total 
value  of  the  product,  since  the  material  going  into  two 
different  articles  have  the  same  conversion  cost  may  vary 
widely  in  value;  while,  on  the  other  hand,  the  material  for 
the  production  of  exactly  the  same  article  may  vary  widely 
in  value  at  two  different  periods  and  the  conversion  cost  re- 
main exactly  the  same.  .  .  . 


SOME  FINDINGS  ON  WOOL  353 

Ready-made  clothing  [page  18].  The  investigation  into 
the  ready-made  clothing  industry  shows  that  the  cloth  is 
the  largest  element  in  the  clothing  produced  and  is  equal  to 
one-third  of  the  net  wholesale  selling  price.  It  varies  with 
the  grades  of  clothing  produced,  being  highest  relatively  in 
the  cheaper  garments.  The  cost  of  linings  is  about  5  per  cent, 
of  the  net  wholesale  selling  price.  The  total  cost  of  cloth 
and  woolen  materials,  taken  as  a  whole,  is  equal  to  about  40 
per  cent,  of  this  price. 

In  considering  the  importance  of  cloth  cost  to  the  wearer 
of  clothing,  it  is  necessary  to  bear  in  mind  the  margin  be- 
tween wholesale  and  retail  price.  The  retail  price  is  usually 
50  per  cent,  or  more  above  the  net  wholesale  price.  On  this 
basis  about  25  per  cent,  of  the  price  paid  to  the  retailer 
goes  to  the  manufacturer  of  cloth. 

Taking  the  industry  as  a  whole,  the  cost  of  material, 
labor,  and  all  other  expense  undergone  in  converting  ma- 
terial into  finished  garments  is  80  per  cent,  of  the  net  whole- 
sale selling  price  of  the  finished  product.  Out  of  this  20  per 
cent,  margin  between  the  total  manufacturing  cost  and  the 
manufacturer's  net  selling  price  comes  selling  expense,  such 
general  expense  as  cannot  be  charged  directly  to  manufacturing 
or  selling,  and  profit.  These  figures  apply  particularly  to 
men's  clothing,  where  garments  are  more  standardized  and 
represent  costs  more  easy  to  determine. 

In  women's  garments  the  cloth  is  also  the  largest  single 
item.  In  skirts  it  is  equal  to  40  per  cent,  of  the  net  whole- 
sale selling  price;  on  most  cloaks  equal  to  between  30  and 
35  per  cent.;  on  cheap  suits  it  is  over  25  per  cent.;  and  on 
more  expensive  varieties  it  falls  below  20  per  cent.  To  the 
manufacturer,  therefore,  cloth  is  not  so  important  an  ele- 
ment of  cost  in  women's  clothing  as  in  men's.  On  the  other 
hand,  the  labor  and  manufacturing  expense  are  more  im- 
portant in  women's  clothing.  The  margin  remaining  to  the 
manufacturer  of  women's  garments,  over  and  above  the  cost 
of  materials  and  expense  of  converting  them  into  wearing 


356  SOME  FINDINGS  ON  WOOL 

apparel,  is  somewhat  less  than  in  the  men 's  clothing  industry, 
but  selling  expenses  are  considerably  lower  for  these  estab- 
lishments. .  .  . 

Wages  and  efficiency  [page  22].  The  investigation  as  to 
wages  and  efficiency  covering  35,029  persons  and  164  separate 
occupations  shows  that  the  earnings  of  weavers  based  upon 
actual  yardage  and  piece  rates  per  yard,  range  from  $6  to 
$18  per  week,  with  an  average  for  worsted  weavers  of  $12.36 
for  males  and  $9.54  for  females,  and  for  woolen  weavers  an 
average  of  $10.63  for  males  and  -$10.54  for  females.  The 
weekly  earnings  are  based  on  a  week  of  55.6  hours,  the  same 
as  the  average  hours  for  the  industry  in  Great  Britain. 

Of  the  total  7990  scouring,  carding,  combing,  drawing, 
and  spinning  machines  and  12,337  weaving  looms  investigated, 
78  per  cent,  of  all  the  machines  excepting  looms  .  .  .  are  of 
foreign  manufacture  and  22  per  cent,  of  American  make.  It 
is  asserted  by  manufacturers  that  American-made  machines 
for  worsted  spinning  cannot  produce  the  desired  results. 
Seventy-seven  and  one-tenth  per  cent,  of  the  looms  in  use 
were  made  in  the  United  States  and  22.9  per  cent,  in  foreign 
countries. 

Of  the  35,029  employees,  36.5  per  cent,  were  born  in  the 
United  States  and  63.5  per  cent  in  foreign  countries.  Thirty- 
five  and  one-tenth  per  cent,  of  all  employees  were  of  the 
newer  immigration  from  Italy,  eastern  and  southern  Europe. 
The  supervisory  class  was  made  up  principally  of  persons 
born  in  the  United  States,  the  British  Isles,  and  Germany. 

Eighty-three  and  three-tenths  per  cent,  of  the  total  em- 
ployees had  no  previous  experience  in  the  woolen  or  other 
manufacturing  or  mechanical  industry  before  going  to  work  in 
the  woolen  mills.  Fifty  and  nine-tenths  per  cent,  of  these 
came  directly  to  the  mill  from  the  school  or  the  home  and  32.4 
per  cent,  had  been  employed  in  agricultural,  transportation, 
trade,  domestic  service,  and  other  non-manufacturing  occupa- 
tions. About  one-sixth  (16.6  per  cent.)  had  been  in  the  in- 


SOME  FINDINGS  ON  WOOL  35? 

dustry  less  than  one  year  and  53.9  per  cent,  less  than  five 
years. 

Eighty  per  cent,  of  loom  production  on  worsteds  and  70 
per  cent,  on  woolens,  with  20  per  cent,  of  loom  stoppages  on 
worsted  and  30  per  cent,  on  woolens  while  weaving,  are  the 
manufacturers'  desired  standards  of  efficiency.  The  individ- 
ual records  kept  by  the  Tariff  Board  of  weavers  opera- 
ting 11,080  looms  show  that  the  weavers  operating  4.1  per 
cent,  of  the  worsted  looms  and  2  per  cent,  of  the  woolen  looms 
attained  a  productive  efficiency  of  90  per  cent,  and  over.  On 
24.7  per  cent,  of  worsted  and  12.9  of  woolen  looms  the 
efficiency  was  80,  but  less  than  90  per  cent.  On  30.9  per 
cent,  of  worsted  and  21.6  per  cent,  of  woolen  looms  the  effi- 
ciency was  70  but  less  than  80  per  cent.  On  34.1  per  cent, 
of  worsted  and  45.4  per  cent,  of  woolen  looms  the  efficiency 
was  50  but  less  than  70  per  cent.  On  6.2  per  cent,  of  worsted 
and  18  per  cent,  of  woolen  looms  the  productive  efficiency  of 
the  weavers  fell  below  50  per  cent. 

Seventy  per  cent,  of  the  weavers  were  born  in  the  United 
States,  Germany,  and  the  British  Isles,  and  30  per  cent,  in 
Italy,  eastern  and  southeastern  Europe.  Two  menders  and 
burlers  were  employed  for  every  four  weavers  and  nine  looms 
to  correct  the  imperfections  in  the  woven  cloth.  Two  and 
eighteen  one-hundred ths  per  cent,  of  the  yardage  produced 
was  still  imperfect  after  mending  and  was  sold  as  seconds. 

The  productive  efficiency  per  one  man  hour  for  machine 
operatives  and  machines  in  the  scouring,  carding,  combing, 
drawing,  and  spinning  departments,  with  168  separate  labor 
costs  per  pound,  show  wide  differences  in  efficiency  and  cost, 
but  indicate  in  general  that  the  lowest  labor  costs  per  pound 
were  in  mills  paying  the  highest  wages. 


FINDINGS  ON  THE  WOOL  TARIFF 

[PRESIDENT  TAFT  in  submitting  to  Congress  the  Tariff  Board's  report 
on  Schedule  K,  Dec.  20,  1911,  made,  among  other  comments,  the  fol- 
lowing (Report,  Wool  and  manufactures  of  wool,  pp.  4-6)  :] 

The  report  shows  that  the  present  method  of  assessing 
the  duty  on  raw  wool — this  is,  by  a  specific  rate  on  the  grease 
pound  (i.e.,  unsecured) — operates  to  exclude  wools  of  high 
shrinkage  in  scouring  but  fine  quality  from  the  American 
market  and  thereby  lessens  the  range  of  wools  available  to 
the  domestic  manufacturer;  that  the  duty  on  scoured  wool 
of  33  cents  per  pound  is  prohibitory.  .  .  . 

The  report  shows  in  detail  the  difficulties  involved  in 
attempting  to  state  in  categorical  terms  the  cost  of  wool 
production  and  the  great  differences  in  cost  as  between  dif- 
ferent regions  and  different  types  of  wool.  It  is  found,  how- 
ever, that,  taking  all  varieties  in  account,  the  average  cost 
of  production  for  the  whole  American  clip  is  higher  than  the 
cost  in  the  chief  competing  country  by  an  amount  somewhat 
less  than  the  present  duty.  .  .  . 

The  report  shows  that  the  duties  on  noils,  wool  wastes,  and 
shoddy,  which  are  adjusted  to  the  rate  of  33  cents  on  scoured 
wool  are  prohibitory  in  the  same  measure  that  the  duty  on 
scoured  wool  is  prohibitory.  In  general  they  are  assessed  at 
rates  as  high  as,  or  higher  than,  the  duties  paid  on  the  clean 
content  of  wools  actually  imported.  They  should  be  reduced 
and  so  adjusted  to  the  rate  on  wool  as  to  bear  their  proper 
proportion  to  the  real  rate  levied  on  the  actual  wool  imports, 

The  duties  on  many  classes  of  wool  manufacture  are  pro- 
hibitory and  greatly  in  excess  of  the  difference  in  cost  of 
production  here  and  abroad.  .  .  . 

858 


FINDINGS  ON  THE  WOOL  TARIFF  359 

On  the  other  hand,  the  findings  show  .  .  .  that  the  prices 
of  domestic  fabrics  are  not  raised  by  the  full  amount  of 
duty.  .  .  . 

Although  these  duties  do  not  increase  prices  of  domestic 
goods  by  anything  like  their  full  amount,  it  is  none  the  less 
true  that  such  prohibitive  duties  eliminate  the  possibility 
of  foreign  competition,  even  in  time  of  scarcity;  that  they 
form  a  temptation  to  monopoly  and  conspiracies  to  control 
domestic  prices ;  that  they  are  much  in  excess  of  the  difference 
in  cost  of  production  here  and  abroad;  and  that  they  should 
be  reduced  to  a  point  which  accords  with  this  principle. 

The  findings  of  the  board  show  that  in  this  industry  the 
actual  manufacturing  cost,  aside  from  the  question  of  the  price 
of  materials,  is  much  higher  in  this  country  than  it  is  abroad ; 
that  in  the  making  of  yarn  and  cloth  the  domestic  woolen  or 
worsted  manufacturer  has  in  general  no  advantage  in  the  form 
of  superior  machinery  or  more  efficient  labor  to  offset  the 
higher  wages  paid  in  this  country.  The  findings  show  that 
the  cost  of  turning  wool  into  yard  in  this  country  is  about 
double  that  in  the  leading  competing  country  and  that  the 
cost  of  turning  yarn  into  cloth  is  somewhat  more  than  double. 
Under  the  protective  policy  a  great  industry,  involving  the 
welfare  of  hundreds  of  thousands  of  people,  has  been  estab- 
lished despite  these  handicaps. 

In  recommending  revision  and  reduction  I  therefore  urge 
that  action  be  taken  with  these  facts  in  mind,  to  the  end  that 
an  important  and  established  industry  may  not  be  jeopardized. 

The  Tariff  Board  reports  that  no  equitable  method  has  been 
found  to  levy  purely  specific  duties  on  woolen  and  worsted 
fabrics  and  that,  excepting  for  a  compensatory  duty,  the  rate 
must  be  ad  valorem  on  such  manufactures.  It  is  important 
to  realize,  however,  that  no  flat  ad  valorem  rate  on  such 
fabrics  can  be  made  to  work  fairly  and  effectively.  Any 
single  rate  which  is  high  enough  to  equalize  the  difference 
in  manufacturing  cost  at  home  and  abroad  on  highly  finished 
goods,  involving  such  labor,  would  be  prohibitory  on  cheaper 


360  FINDINGS  ON  THE  WOOL  TARIFF 

goods,  in  which  the  labor  cost  is  a  smaller  proportion  of  the 
total  value.  Conversely,  a  rate  only  adequate  to  equalize 
this  difference  on  cheaper  goods  would  remove  protection 
from  the  fine-goods  manufacture,  the  increase  in  which  has 
been  one  of  the  striking  features  of  the  trade's  develop- 
ment in  recent  years.  I  therefore  recommend  that  in  any 
revision  the  importance  of  a  graduated  scale  of  ad  valorem 
duties  on  cloths  be  carefully  considered  and  applied. 


THE  INTERSTATE  COMMERCE  ACT, 

["THE  Act  to  Regulate  Commerce"  was  approved  Feb.  4,  1887,  and 
went  into  effect  April  5,  1887.  It  was  amended  slightly  in  1889,  and 
1908,  and  greatly  in  1906  and  again  in  1910.  Below  are  given  some 
of  the  most  important  sections  entire,  other  whole  paragraphs,  and 
a  syllabus  of  the  rest  of  the  act.  The  dates  of  the  acts  in  which  the 
several  features  first  occurred  are  in  brackets  preceding  each  significant 
statement,  thus  indicating  the  more  important  changes  and  the  growth 
of  the  Act.] 

§  1.  (As  amended  FJune  29,  1906,  April  13,  1908,  and  June 
18,  1910.)  [1887]  That  the  provisions  of  this  Act  shall 
apply  to  any  [1906]  corporation  or  any  person  or  persons 
engaged  in  the  transportation  of  oil  or  other  commodity,  ex- 
cept water  and  except  natural  or  artificial  gas,  by  means  of 
pipe  lines,  or  partly  by  pipe  lines  and  partly  by  railroad,  or 
partly  by  pipe  lines  and  partly  by  water,  and  [1910]  to  tele- 
graph, telephone,  and  cable  companies  (whether  wire  or  wire- 
less) engaged  in  sending  messages  from  one  State,  Territory, 
or  District  of  the  United  States  or  to  any  foreign  country, 
who  shall  be  considered  and  held  to  be  common  carriers 
within  the  meaning  and  purpose  of  this  Act,  and  to  any 
[1887]  common  carrier  or  carriers  engaged  in  the  transpor- 
tation of  passengers  or  property  wholly  by  railroad  (or  partly 
by  railroad  and  partly  by  water  when  both  are  used  under  a 
common  control,  management,  or  arrangement  for  a  con- 
tinuous carriage  or  shipment),  from  one  State  or  Territory 
of  the  United  States  or  the  District  of  Columbia,  or  [1906] 
from  one  place  in  a  Territory  to  another  place  in  the  same 
Territory,  [1887]  or  from  any  place  in  the  United  States 
to  an  adjacent  foreign  country,  or  from  any  place  in  the 
United  States  through  a  foreign  country  to  any  other  place 

361 


362  THE  INTERSTATE  COMMERCE  ACT 

in  the  United  States,  and  also  to  the  transportation  in  like 
manner  of  property  shipped  from  any  place  in  the  United 
States  to  a  foreign  country  and  carried  from  such  place  to 
a  port  of  transshipment,  or  shipped  from  a  foreign  country 
to  any  place  in  the  United  States  and  carried  to  such  place 
from  a  port  of  entry  either  in  the  United  States  or  an  adja- 
cent foreign  country:  Provided,  however,  That  the  pro- 
visions of  this  Act  shall  not  apply  to  the  transportation  of 
passengers  or  property,  or  to  the  receiving,  delivering,  storage, 
or  handling  of  property  wholly  within  one  State  and  not 
shipped  to  or  from  a  foreign  country  from  or  to  any  State 
or  Territory  as  aforesaid,  [1910]  nor  shall  they  apply  to  the 
transmission  of  messages  by  telephone,  telegraph,  or  cable 
wholly  within  one  State  and  not  transmitted  to  or  from  a 
foreign  country  from  or  to  any  State  or  Territory  as  afore- 
said. 

[1906]  The  term  "common  carrier "  as  used  in  this  Act 
shall  include  express  companies  and  sleeping-car  companies. 
[1887]  The  term  "  railroad "  as  used  in  this  Act  shall  include 
all  bridges  and  ferries  used  or  operated  in  connection  with 
any  railroad,  and  also  all  the  road  in  use  by  any  corpora- 
tion operating  a  railroad,  whether  owned  or  operated  under 
a  contract,  agreement,  or  lease,  [1906]  and  shall  also  include 
all  switches,  spurs,  tracks,  and  terminal  facilities  of  every 
kind  used  or  necessary  in  the  transportation  of  the  persons 
or  property  designated  herein,  and  also  all  freight  depots, 
yards,  and  grounds  used  or  necessary  in  the  transportation 
or  delivery  of  any  of  said  property;  and  the  term  " trans- 
portation' '  shall  include  [1906]  cars  and  other  vehicles  and 
[1887]  all  instrumentalities  [1906]  and  facilities  [1887]  of 
shipment  or  carriage,  [1906]  irrespective  of  ownership  or  of 
any  contract,  express  or  implied,  for  the  use  thereof  and  all 
services  in  connection  with  the  receipt,  delivery,  elevation, 
and  transfer  in  transit,  ventilation,  refrigeration  or  icing, 
storage,  and  handling  of  property  transported;  and  it  shall 
be  the  duty  of  every  carrier  subject  to  the  provisions  of  this 


THE  INTERSTATE  COMMERCE  ACT  363 

Act  to  provide  and  furnish  such  transportation  upon  reason- 
able request  therefor,  and  to  establish  through  routes  and 
just  and  reasonable  rates  applicable  thereto;  [1910]  and  to 
provide  reasonable  facilities  for  operating  such  through  routes 
and  to  make  reasonable  rules  and  regulations  with  respect 
to  the  exchange,  interchange,  and  return  of  cars  used  therein, 
and  for  the  operation  of  such  through  routes,  and  providing 
for  reasonable  compensation  to  those  entitled  thereto. 
[1887]  All  charges  made  for  any  service  rendered  or  to  be 
rendered  in  the  transportation  of  passengers  or  property, 
[1910]  and  for  the  transmission  of  messages  by  telegraph, 
telephone,  or  cable,  [1887]  as  aforesaid,  or  in  connection 
therewith,  shall  be  just  and  reasonable;  and  every  unjust 
and  unreasonable  charge  for  such  service  [1906]  or  any  part 
thereof  [1887]  is  prohibited  and  declared  to  be  unlawful: 
[1910]  Provided,  That  messages  by  telegraph,  telephone,  or 
cable,  subject  to  the  provisions  of  this  Act,  may  be  classified 
into  day,  night,  repeated,  unrepeated,  letter,  commercial, 
press,  Government,  and  such  other  classes  as  are  just  and 
reasonable,  and  different  rates  may  be  charged  for  the  dif- 
ferent classes  of  messages:  And  Provided  further,  That 
nothing  in  this  Act  shall  be  construed  to  prevent  telephone, 
telegraph,  and  cable  companies  from  entering  into  contracts 
with  common  carriers  for  the  exchange  of  services. 

[1910.  Classification  must  be  just  and  reasonable,  so  also  must  the 
regulations  and  practices  such  as  marking,  packing,  delivery,  etc.] 

[1887.  Free  passes  and  free  transportation  prohibited.  1906.  De- 
tails of  excepted  classes,  as  employees,  charitable  workers,  etc.] 

[1906.  The  Commodities  Clause.]  From  and  after  May 
first,  nineteen  hundred  and  eight,  it  shall  be  unlawful  for  any 
railroad  company  to  transport  from  any  State,  Territory,  or 
the  District  of  Columbia,  to  any  other  State,  Territory,  or  the 
District  of  Columbia,  or  to  any  foreign  country,  any  article 
or  commodity,  other  than  timber  and  the  manufactured  prod- 
ucts thereof,  manufactured,  mined,  or  produced  by  it,  or 


364:  THE  INTERSTATE  COMMERCE  ACT 

under  its  authority,  or  which  it  may  own  in  whole  or  in  part, 
or  in  which  it  may  have  any  interest,  direct  or  indirect,  except 
such  articles  or  commodities  as  may  be  necessary  and  intended 
for  its  use  in  the  conduct  of  its  business  as  a  common  carrier. 

[1906.  Switch  Connections.]  Any  common  carrier  sub- 
ject to  the  provisions  of  this  Act,  upon  application  of  any 
lateral,  branch  line  of  railroad,  or  of  any  shipper  tendering 
interstate  traffic  for  transportation,  shall  construct,  main- 
tain, and  operate  upon  reasonable  terms  a  switch  connection 
.  .  .  where  such  connection  is  reasonably  practicable  and  can 
be  put  in  with  safety  and  will  furnish  sufficient  business  to 
justify  the  construction  and  maintenance  of  the  same;  and 
shall  furnish  cars  for  the  movement  of  such  traffic  to  the 
best  of  its  ability  without  discrimination  in  favor  of  or  against 
any  such  shipper  .  .  .  [1906  Switch  connections  may  be 
ordered  by  the  Commission.] 

§  2.  [1887.  Unjust  discrimination  defined  and  forbidden.] 
That  if  any  common  carrier  subject  to  the  provisions  of  this 
Act  shall,  directly  or  indirectly,  by  any  special  rate,  rebate, 
drawback,  or  other  device,  charge,  demand,  collect,  or  receive 
from  any  person  or  persons  a  greater  or  less  compensation  for 
any  service  rendered,  or  to  be  rendered,  in  the  transportation 
of  passengers  or  property,  subject  to  the  provisions  of  this 
Act,  than  it  charges,  demands,  collects,  or  receives  from  any 
other  person  or  persons  for  doing  for  him  or  them  a  like  and 
contemporaneous  service  in  the  transportation  of  a  like  kind  of 
traffic  under  substantially  similar  circumstances  and  condi- 
tions, such  common  carrier  shall  be  deemed  guilty  of  unjust 
discrimination,  which  is  hereby  prohibited  and  declared  to  be 
unlawful. 

§  3.  [1887.  Undue  or  unreasonable  preference  or  advantage  for- 
bidden. Facilities  for  interchange  of  traffic.  Discrimination  between 
connecting  lines  forbidden.  1903.  By  Elkins*  Act  only  one  shipment 
at  less  than  published  rate  necessary  to  constitute  a  violation.] 

§  4.  [The  Long  and  short  haul  section.]  (As  amended 
June  18,  1910.)  .[1887]  That  it  shall  be  unlawful  for  any. 


-  "*"  THE  INTERSTATE  COMMERCE  ACT  365 

common  carrier  subject  to  the  provisions  of  this  Act  to  charge 
or  receive  any  greater  compensation  in  the  aggregate  for  the 
transportation  of  passengers,  or  of  like  kind  of  property, 
[1910  "under  substantially  similar  circumstances  and  con- 
ditions*' omitted]  for  a  shorter  than  for  a  longer  distance 
over  the  same  line  or  route  in  the  same  direction,  the  shorter 
being  included  within  the  longer  distance,  [1910]  or  to  charge 
any  greater  compensation  as  a  through  route  than  the  ag- 
gregate of  the  intermediate  rates  subject  to  the  provisions  of 
this  Act;  [1887]  but  this  shall  not  be  construed  as  authorizing 
any  common  carrier  within  the  terms  of  this  Act  to  charge 
or  receive  as  great  compensation  for  a  shorter  as  for  a  longer 
distance:  Provided,  however,  That  upon  application  to  the 
Interstate  Commerce  Commission  such  common  carrier  may 
in  special  cases,  after  investigation,  be  authorized  by  the 
Commission  to  charge  less  for  longer  than  for  shorter  distances 
for  the  transportation  of  passengers  or  property;  and  the 
Commission  may  from  time  to  time  prescribe  the  extent  to 
which  such  designated  common  carrier  may  be  relieved  from 
the  operation  of  this  section:  [1910]  Provided,  further, 
That  no  rates  or  charges  lawfully  existing  at  the  time  of 
the  passage  of  this  amendatory  Act  shall  be  required  to  be 
changed  by  reason  of  the  provisions  of  this  section  prior  to 
the  expiration  of  six  months  after  the  passage  of  this  Act, 
nor  in  any  case  where  application  shall  have  been  filed  before 
the  Commission,  in  accordance  with  the  provisions  of  this 
section,  until  a  determination  of  such  application  by  the 
Commission. 

[1910]  Whenever  a  carrier  by  railroad  shall  in  competition 
with  a  water  route  or  routes  reduce  the  rates  on  the  carriage 
of  any  species  of  freight  to  or  from  competitive  points,  it 
shall  not  be  permitted  to  increase  such  rates  unless  after  it 
shall  be  found  that  such  proposed  increase  rests  upon  changed 
conditions  other  than  the  elimination  of  water  competition. 

§  5.  [1887.  The  anti-pooling  section.]  That  it  shall  be 
unlawful  for  any  common  carrier  subject  to  the  provisions 


366  THE  INTERSTATE  COMMERCE  ACT 

of  this  Act  to  enter  into  any  contract,  agreement,  or  com- 
bination with  any  other  common  carrier  or  carriers  for  the 
pooling  of  freights  of  different  and  competing  railroads,  or 
to  divide  between  them  the  aggregate  or  net  proceeds  of  the 
earnings  of  such  railroads,  or  any  portion  thereof;  and  in 
any  case  of  an  agreement  for  the  pooling  of  freights  as  afore- 
said, each  day  of  its  continuance  shall  be  deemed  a  separate 
offense. 

§  6.  [1887,  amended  1889,  1906,  1910.  1887.  Printing  and  posting 
of  schedule  of  rates,  fares  and  charges,  including  rules  and  regulations 
affecting  the  same  (1906)  and  icing,  storage  and  transit  charges  and 
freight  classifications;  stricter  details.  1887.  Freight  carried  through 
a  foreign  country  subject  to  customs  duties  in  case  of  failure  to  publish 
through  rates.  1906.  Thirty  (formerly  ten)  days'  notice  must  be  given 
of  any  change  (formerly  advance)  in  rates,  etc.  Proviso:  Commission 
may  modify  requirements  of  this  section.  1906.  Joint  tariffs  must 
specify  names  of  carriers  participating.  1887.  Every  common  car- 
rier shall  file  copies  of  all  contracts,  agreements,  etc.  1906.  Fur- 
ther sharpening  of  requirement  to  publish  rates;  transportation  pro- 
hibited until  rates  published;  prohibited  rates  not  to  be  deviated  from. 
Penalty  for  failure  to  comply  with  regulation.  1910.  Carriers  must 
furnish  written  statement  of  rate.  Damages  for  misstatement.] 

§  7.  [1887.  Carriage  of  freights  from  place  of  shipment  to  place  of 
destination  must  be  continuous;  contracts  to  evade  forbidden.] 

§  8.     [1887.    Liability  of  common  carriers  for  damages.] 

§  9.  [1887.  Persons  claiming  to  be  damaged  may  elect  whether 
to  complain  to  the  Commission  or  bring  suit  in  a  United  States  court. 
Officers  of  defendant  may  be  compelled  to  testify.] 

§  10.  [1887.  Penalties  for  violations  of  Act  by  carriers  or  when 
the  carrier  is  a  corporation,  its  officers,  agents,  or  employees;  for 
false  billing,  etc.,  by  carriers,  their  officers  or  agents;  for  false  billing, 
etc.,  by  shippers  and  other  persons;  for  inducing  common  carriers  to 
discriminate  unjustly:  fine  and  imprisonment.  Joint  liability  with 
carrier  for  damages.] 

§  11.  [1887.  Creating  the  Interstate  Commerce  Commission; 
changed  in  1906  by  §  24.] 

§§  12,  13,  14.  [1887,  variously  amended  in  1889,  1891,  1906,  and 
1910;  empowers  the  Commission  to  execute  and  enforce  the  Act,  lay 
down  methods  of  procedure,  etc.] 

§  15.  [Original  section  wholly  superseded  June  29,  1906,  and 
amended  June  18,  1910.  1906.  Powers  of  the  Commission.  Com- 


THE  INTERSTATE  COMMERCE  ACT  367 

mission  may  determine  and  prescribe  just  and  reasonable  rates  and 
classifications  to  be  observed  as  maximum  charges,  and  just  and  rea- 
sonable regulations  or  practices;  may  order  carriers  to  cease  and 
desist  from  full  extent  of  violations  found.  Orders  of  the  Commission 
effective  as  prescribed,  but  in  not  less  than  thirty  days.  Orders  shall 
continue  in  force  not  exceeding  two  years,  unless  suspended  or  set 
aside  by  Commission  or  court.  When  carriers  fail  to  agree  on  divisions 
of  joint  rate,  Commission  may  prescribe  proportion  of  such  rate  to 
be  received  by  each  carrier.  1910.  Commission  may  investigate  new 
schedules,  may  suspend  them  and  extend  suspension.  Burden  of  proof 
on  carrier  as  to  reasonableness  of  increased  rates.  1906.  Commission 
may  establish  through  routes  and  joint  rates  and  classifications. 
1910.  Limitation  on  through  route  power.  Shipper  may  select  route. 
Unlawful  to  give  or  receive  information  relative  to  rivals'  shipments; 
exceptions;  penalty.  1906.  Commission  may  determine  just  and  rea- 
sonable charge  or  allowance  for  service  rendered  by  owner  of  property 
transported  or  for  any  instrumentality  furnished  by  such  owner  and 
used  in  such  transportations.  Enumeration  of  powers  in  this  section 
not  exclusive.] 

§§  16-23.  [Stipulate  method  of  award,  of  appeals  to  courts,  forms 
of  procedure,  etc.] 

§  24.  [Enlarging  the  Commission  to  seven  members  (not  more  than 
four  of  one  political  party)  with  term  of  seven  years.  Compensation 
ten  thousand  dollars  annually.] 

[By  Act  of  June  18,  1910,  a  Commerce  Court  was  created  to  which 
•was  given  the  jurisdiction  possessed  by  circuit  courts  over  appeals 
to  enforce  or  to  annul  the  Commission's  orders,  certain  cases  under 
the  Elkins'  Act,  and  mandamus  proceedings.  In  June,  1912,  Congress 
voted  to  abolish  the  Commerce  Court.] 


RAILROAD  VALUES  AND  RATES 

[No  railroad  rate  question  ever  brought  before  the  Interstate  Com- 
merce Commission,  it  seems  probable,  has  exceeded  in  importance  that 
involved  "in  the  matter  of  proposed  advances  in  freight  rates  by 
carriers,"  decided  Feb.  22,  1911.  The  question  was  as  to  the  justness 
and  reasonableness  of  certain  proposed  (increased)  rates,  considered 
as  a  whole,  affecting  a  large  part  of  the  traffic  throughout  a  large 
part  of  the  country.  The  inquiry  was  divided  into  two  parts,  the  one 
affecting  the  Western  roads,  and  the  other  the  Eastern  roads,  and 
separate  decisions  were  rendered;  but  fundamentally  one  issue  was 
involved,  the  right  of  the  railroads  in  these  territories,  acting  in 
unison  and  exercising  a  certain  degree  of  monopoly  power,  to  put  into 
effect  the  new  rates  proposed.  The  decision  of  the  Commission,  which 
was  in  both  cases  unanimous,  was  adverse  to  the  railroads.  It  had 
been  generally  predicted  by  railroad  advocates  that  if  an  adverse  de- 
cision were  rendered,  it  would  greatly  depress  railroad  securities.  A 
slight  immediate  decline  did  occur,  followed  by  a  quick  recovery,  and 
later  by  an  advance.  The  opinions  of  the  Commission,  and  the  evi- 
dences presented  showing  the  growing  revenues  and  generally  pros- 
perous conditions  of  the  roads,  served  as  a  certificate  of  soundness  ac- 
cepted by  investors. 

Among  the  far-reaching  questions  discussed  in  the  decisions  was  that 
whether  rates  may  justly  be  increased  to  earn  dividends  either  on 
undistributed  earnings  in  the  past  or  on  the  increment  of  land  values 
in  city  terminals  or  on  the  rights  of  way.  This  question  is  to  some 
extent  involved  in  every  case  of  rates  as  connected  with  franchise 
values  of  public-service  corporations.  Neither  the  courts  nor  the  com- 
missions seem  as  yet  to  have  entirely  solved  the  problem.  The  Inter- 
state Commerce  Commission  said  in  the  decision  on  the  Western  Roads 
case  (Senate  Document,  No.  725,  61st  Congress,  3d  session,  in  10 
volumes;  extracts  from  pp.  5382-5391):] 

The  Burlington's  claim  of  " legal  right.'1  The  Chicago, 
Burlington  &  Quincy  Railroad  Co.  presents  another  ground  of 
justification  for  advancing  the  rates  under  consideration.  It 
is  entitled  "as  a  matter  of  legal  right  to  a  fair  return  upon 

868 


RAILROAD  VALUES  AND  RATES  369 

the  actual  value  of  its  property  used  for  transportation, 
which  value,  from  whatever  source  in  the  past  created,  is 
measured  in  its  case  by  at  least  the  cost  of  presently  repro- 
ducing its  physical  plant.  To  obtain  such  fair  return,  it 
necessarily  and  equally  is  entitled  to  charge  in  the  aggregate 
rates  of  transportation  which,  subject  to  the  one  limitation 
that  the  particular  component  rates  are  themselves  reason- 
able and  just  to  the  shipper,  will  produce  such  reasonable  re- 
turn upon  the  property  employed." 

From  this  postulate  the  Burlington  proceeds  to  the  con- 
clusion that  it  does  not  now  enjoy  a  fair  return,  and  finding 
itself  confronted  with  the  need  of  additional  revenues  to  meet 
wage  advances  and  other  operation  and  maintenance  charges 
and  to  offset  diminishing  net  earnings,  it  may,  as  a  matter 
of  legal  right,  advance  the  rates  upon  the  commodities  se- 
lected, inasmuch  as  the  advanced  rates  would  be  reasonable 
in  view  of  the  value  of  the  service  to  the  shipper.  Logically 
it  refuses  to  have  its  position  regarded  as  an  attempt  to 
justify  these  higher  charges,  for  in  its  theory  it  does  not 
need  to  justify  them,  and  what  it  presents  to  the  commission 
is  termed  as  "explanation  of  them  and  of  the  occasion  for 
their  imposition. ' ' 

Here  is  a  proposition  at  once  novel  and  searching.  The 
Burlington  road  may  be  taken  as  representative  in  that  terri- 
tory. Its  traffic  is  diversified;  its  capitalization  compara- 
tively conservative;  its  credit  excellent;  its  tonnage  large; 
and  management  capable.  When  asked  by  the  Government 
to  explain  why  it  has  increased  its  charges,  its  reply  is  that 
it  has  a  right  to  do  so  because  it  is  not  now  receiving  a  fair 
return  upon  the  value  of  the  property  which  it  uses;  value 
being  estimated  cost  of  reproduction.  This  leads  to  a  few 
questions :  (1)  What  did  the  Burlington  road  cost  those  who 
built  it?  (2)  What  is  its  present  value?  (3)  Whence  came 
this  value?  (4)  Is  such  increase  in  value  a  basis  for  increase 
in  rates? 

The  controller  of  the  company  has  given  us  the  answer  to 

24 


370  RAILROAD  VALUES  AND  RATES 

the  first  question.  He  testified  that  the  total  investment  in 
the  property  from  the  sale  of  stocks  and  bonds  was  $258,- 
000,000. 

To  the  second  question  the  company  answers  that  its  present 
value  is  $530,000,000. 

The  difference  between  these  two  figures  represents  (1) 
investment  in  the  property  made  out  of  earnings;  (2)  in- 
creased value  of  right  of  way  and  terminals  owned  by  the 
company.  This  is  the  answer  to  the  third  question. 

The  position  therefore  taken  by  the  Burlington  is  that  it 
has  a  right  vested  in  it  by  law  to  add  to  its  freight  charges 
such  amounts  as  will  yield  at  the  present  time  a  fair  rate  of 
interest  upon  more  than  $270,000,000  which  does  not  repre- 
sent either  the  proceeds  from  the  sale  of  a  share  of  stock  or  a 
dollar  of  borrowed  money,  so  long  as  the  rate  to  the  shipper 
is  not  unreasonable. 

This  contention  opens  up  the  broadest  field  of  inquiry, 
as  to  the  questions  of  law  and  fact  upon  which  the  commission 
could  enter.  We  have  before  us  a  property  constructed  by 
private  persons  under  authority  of  Government  to  be  devoted 
to  a  public  use.  These  private  persons  invest  in  that  property 
the  issues  of  certain  sales  of  stocks  or  bonds  amounting  to 
4858,000,000.  They  capitalize  this  property  at  $320,000,000, 
one-third  of  which  capitalization  is  represented  by  stock  and 
two-thirds  by  bonds;  they  carry  upon  their  books  the  cost  of 
road  and  equipment  at  $364,000,000;  and  they  now  insist 
that  the  law  gives  them  the  right  to  a  return  upon  $530,000,- 
000.  .  .  . 

Under  its  present  capitalization,  $320,000,000  ($110,000,- 
000  of  which  was  in  stock),  this  corporation  had  available  for 
distribution  as  dividends  $13,975,620  in  the  year  1910,  or  12.61 
per  cent,  on  its  capital  stock  outstanding.  "This,"  says  the 
Burlington,  "is  an  insufficient  return,  because  it  is  based 
upon  a  capitalization  which  represents  much  less  than  value, 
and  the  courts  have  decided  that  under  the  Constitution  prop- 
erty of  this  character  is  entitled  to  a  reasonable  return  upon 


RAILROAD  VALUES  AND  RATES  371 

the  present  fair  value  of  its  property  employed  in  the  service 
of  the  public." 

In  support  of  this  proposition  the  leading  case  of  Smythe 
v.  Ames  (167  U.  S.,  446)  is  cited: 

We  hold,  however,  that  the  basis  of  all  calculations  as  to  the  rea- 
sonableness of  rates  to  be  charged  by  a  corporation  maintaining  a 
highway  under  legislative  sanction  must  be  the  fair  value  of  the 
property  being  used  by  it  for  the  convenience  of  the  public. 

Again,  in  Wilcox  v.  Consolidated  Gas  Co.  (212  U.  S., 
19): 

It  is  no  longer  open  to  dispute  that  under  the  Constitution  what 
the  company  is  entitled  to  demand  in  order  that  it  may  have  just  com- 
pensation is  a  fair  return  upon  the  reasonable  value  of  the  property  at 
the  time  it  is  being  used  by  the  public. 

Relying  upon  these  cases,  the  Burlington's  full  position  is 
that  it  is  immaterial  how  the  property  was  acquired,  what  it 
originally  cost,  whether  the  present  value  may  be  claimed  to 
be  in  part  the  result  of  earnings  put  back  into  the  property 
in  betterments,  or  is  due  to  growth  of  traffic  and  development 
of  the  country  served.  "The  sole  inquiry  open  at  this  time  is 
the  actual  fair  value  of  the  railroad  as  it  exists  to-day  as  a 
going  concern.  The  company  cannot  be  lawfully  required  to' 
take  less  than  a  fair  and  reasonable  return  upon  this  value. 
To  be  denied  such  return  will  be  to  appropriate  in  part  a 
value  that  belongs  to  the  owners  for  the  use  and  benefit  of 
the  public  without  just  compensation  therefore  being  first  paid 
or  secured."  [Cases  cited.] 

Notwithstanding  these  decisions,  it  remains  for  the  Supreme 
Court  yet  to  decide  that  a  public  agency,  such  as  a  railroad 
created  by  public  authority,  vested  with  governmental  au- 
thority, may  continuously  increase  its  rates  in  proportion  to 
the  increase  in  its  value,  either  (1)  because  of  betterments 
which  it  has  made  out  of  income,  or  (2)  because  of  the  growth 
of  the  property  in  value  due  to  the  increase  in  value  of 
the  land  which  the  company  owns. 


372  RAILROAD  VALUES  AND  RATES 

If  the  position  of  the  Burlington  is  sound  and  is  a  precise 
expression  of  what  our  courts  will  hold  to  be  the  law,  then,  as 
we  are  told,  there  is  certainly  the  danger  that  we  may  never 
expect  railroad  rates  to  be  lower  than  they  are  at  present. 
On  the  contrary,  there  is  the  unwelcome  promise  made  in  this 
case  that  they  will  continuously  advance.  In  the  face  of  such 
an  economic  philosophy  if  stable  and  equitable  rates  are  to  be 
maintained,  the  suggestion  has  been  made  that  it  would  be 
wise  for  the  Government  to  protect  its  people  by  taking  to 
itself  these  properties  at  present  value  rather  than  await  the 
day,  perhaps  30  or  50  years  hence,  when  they  will  have  multi- 
plied in  value  ten  or  twenty  fold. 

The  books  of  the  Burlington  road  now  show  some  $76,000,- 
000  in  surplus,  which  is  the  accumulation  from  operating  reve- 
nues of  many  years.  This  surplus  is  not  all  held  in  the  form 
of  cash,  but  has  in  part  been  put  into  the  property  in  one 
form  or  another  of  additions  and  betterments.  The  stock- 
holders, it  is  said,  have  chosen  to  waive  their  right  to  dis- 
tribute this  to  themselves  in  the  form  of  dividends  and  have 
reinvested  it  in  the  property.  Without  questioning  the  right 
of  the  stockholders  to  exercise  this  option,  and  without  de- 
nying to  them  the  right  to  a  return  upon  any  investment 
which  they  make,  this  much  seems  clear :  That  if  the  invest- 
ment in  a  railroad  at  a  given  time  is  $100,000,000,  upon 
which  it  yields  a  net  revenue  of  $25,000,000,  the  stockholders 
may  take  that  $25,000,000  entirely  to  themselves.  But  if 
they  choose  to  take  but  one-half  of  this  amount  as  their  re- 
turn upon  their  investment  and  to  reincorporate  in  the  same 
property  the  remaining  half  of  the  net  earnings,  they  may 
not  for  this  reason  increase  rates  during  the  succeeding  year  so 
as  to  give  them  a  return  upon  $112,500,000.  It  is  idle  to 
spend  time  in  nice  processes  of  reasoning  over  such  a  con- 
dition of  fact.  Public  policy — the  welfare  of  the  State — 
forbids  the  adoption  of  any  such  working  theory.  Because 
of  the  addition  of  the  $12,500,000  a  carrier  may  be  entitled  to 
an  additional  return  upon  the  property,  but  is  it  entitled  to 


RAILROAD  VALUES  AND  RATES  373 

increase  rates  so  as  to  make  that  return  ?  If  the  stockholders, 
as  in  the  last  sense  trustees  for  the  public,  exercise  their 
right  to  reinvest  the  company's  money  in  the  improvement  of 
the  property,  the  company  may  be  entitled  to  an  earning  upon 
the  value  of  that  property  without  it  in  any  way  following 
that  the  rates  out  of  which  this  surplus  was  accumulated  shall 
still  further  be  increased  so  as  to  provide  that  additional  in- 
come. 

Any  new  money  put  into  the  property,  whether  derived 
from  the  sale  of  securities  or  from  surplus,  which  might  have 
been  appropriated  to  dividends,  represents  new  value — an  ad- 
dition to  the  property — and  on  this  addition  the  stockholders 
interested  are  entitled  to  a  reasonable  return  if  that  can  be 
had  for  an  additional  service  given,  but  it  is  not  equitable  that 
because  the  directors  of  a  corporation  see  fit  to  distribute  to 
the  stockholders  less  than  the  amount  which  the  company 
earns  and  may  be  appropriated  to  dividends,  the  shippers 
who  made  this  large  dividend  and  surplus  possible  shall  be 
increasingly  taxed  in  geometrical  progression  to  make  return 
upon  it.  New  improvements  should  bring  new  revenue.  The 
risk  of  the  stockholders  in  investing  their  money  in  these  im- 
provements is  the  same  risk  that  they  took  when  they  invested 
their  original  funds  in  the  original  property.  (San  Diego 
Land  &  Town  Co.  v.  National  City,  78  Fed.  Rep.  87).  ... 

The  shippers  .  .  .  cannot  be  compelled  to  continuously  pay 
higher  rates  because  the  directors  of  the  company  have  not 
seen  fit  to  distribute  their  full  earnings  in  dividends.  .  .  . 
[Otherwise]  it  is  within  the  power  of  a  board  of  directors  to 
indefinitely  increase  the  shipper's  rates,  for  all  that  is  needed 
is  that  the  railroad  in  one  year  make  an  exceedingly  large 
return  and  after  paying  a  dividend  issue  stock  to  the  stock- 
holders equivalent  to  the  balance  of  the  unappropriated 
operating  revenue  available  for  dividends,  and  this  money, 
being  invested  in  the  property,  creates  more  value  which  the 
shipper  must  care  for.  [Other  examples  here  discussed.]  .  .  . 

The  Supreme  Court  in  the  Tift  case  (supra)  held  that  a 


374  RAILROAD  VALUES  AND  RATES 

railroad  could  not  increase  lumber  rates  because  it  was  buying 
new  equipment  out  of  current  earnings,  although  by  so  doing 
it  was  adding  to  the  value  of  its  property,  and  doubtless  in- 
creasing the  facility  of  movement  of  the  lumber  traffic.  This 
principle  makes  against  the  contention  of  the  Burlington  di- 
rectly, and  we  see  no  reason  why  it  may  not  be  accepted  as 
settled  law. 

The  record  does  not  show  nor  does  the  Burlington  contend 
that  its  stockholders  have  not  in  the  past  been  remunerated 
adequately  upon  the  basis  of  their  then-owned  property.  Its 
position  is  that  the  property  having  grown  in  value  with  the 
growth  of  the  West  and  the  increase  in  traffic,  it  may  advance 
rates  up  to  the  point  that  the  shipper  can  afford  to  pay  and 
under  which  the  traffic  will  move. 

We  are  not  here  dealing  with  the  value  of  this  property, 
nor  with  the  definition  of  value,  whether  value  means  in- 
vestment, cost  of  reproduction,  or  something  else.  Our  posi- 
tion is  that  a  railroad  may  not  increase  rates  upon  shippers 
for  the  reason  and  as  an  outgrowth  of  the  fact  that  it  has  ac- 
cumulated out  of  rates  a  balance  of  profit  which  has  been  in- 
vested in  the  property.  This  investment  must  take  care  of 
itself.  It  must  bring  a  return  for  itself  either  in  increased 
traffic  or  in  the  reduction  of  expenses  of  operation.  There  is 
no  justification  for  the  investment  of  this  surplus  if  it  is  to 
have  the  effect  of  increasing  the  rates  upon  the  shippers  over 
the  original  line.  If  the  theory  is  to  be  recognized  that  by 
increasing  the  value  of  their  property,  by  putting  back  opera- 
ting revenue  into  the  property,  a  carrier  may  as  a  legal  right 
increase  rates,  then  the  shipper  is  worse  off  each  time  he 
pays  a  rate  which  allows  a  revenue  over  and  above  a  reasonable 
return  upon  the  original  investment. 

Herein  we  have  outlined  the  full  position  of  the  railroad 
and  the  opposing  position.  We  do  not  regard  the  decision  of 
this  question  as  vital  to  this  proceeding,  however,  accepting  as 
we  do  for  the  purposes  of  this  discussion  the  tenability  of  the 
Burlington's  theory. 


RAILROAD  VALUES  AND  RATES  375 

We  now  turn  for  a  moment  to  consider  the  added  value  of 
railroad  property  by  reason  of  the  increase  in  the  value  of  the 
lands  held  as  terminals  in  cities  and  rights  of  way.  Out  of 
the  difference  between  the  original  investment  of  $258,000,- 
000  and  the  estimated  present  value  of  $530,000,000  it  has 
been  estimated  that  the  increase  in  land  values  amounts  to  ap- 
proximately $150,000,000.  We  may  agree  with  the  conten- 
tion of  the  Burlington  that  it  is  no  concern  of  ours  as  to 
whether  these  lands  were  obtained  by  private  or  public  dona- 
tion in  whole  or  in  part,  but  a  larger  question  of  public  con- 
cern is  involved — the  legal  right  of  a  carrier  to  continuously 
increase  rates  because  of  the  growth  of  the  community  which 
gives  this  added  value  to  the  land  over  which  the  railroad  runs. 
The  States  of  Illinois,  Iowa,  South  Dakota,  Kansas,  and 
Nebraska  have  not  reached  their  maximum  development. 
Their  total  population  under  the  census  of  1910  was  but 
32.66  per  square  mile,  whereas  the  population  of  the  States  im- 
mediately to  the  east — Indiana,  Ohio,  New  York  and  Pennsyl- 
vania— was  143.23  per  square  mile.  We  have  seen  the  popu- 
lation of  the  city  of  Chicago  alone  grow  in  20  years  from 
1,105,540  to  2,185,283.  To-day  a  road  is  built  upon  a  prairie 
farm;  next  year  it  runs  through  a  Kansas  village;  20  years 
hence  this  same  village  may  be  a  city  of  half  a  million. 

It  is  unquestionable  that  Kansas  would  not  enjoy  the  popu- 
lation that  she  has  or  the  prosperity  that  is  hers  without  the 
presence  of  the  railroads,  and  those  men  of  prophetic  vision 
who  projected  those  roads  and  invested  their  capital  therein 
are  not  to  be  denied  a  share  in  the  wealth  which  they  have  so 
largely  helped  to  create.  But  as  these  lands  increase  in  value 
with  the  growth  of  the  communities  which  they  serve  should 
not  this  larger  share  coming  to  the  railroad  arise  out  of  the 
operation  of  that  property  and  the  increase  in  its  traffic  rather 
than  by  the  imposition  of  a  new  burden  of  tolls  upon  those 
who  use  their  road?  This  question  is  not  of  paramount  im- 
portance in  this  case,  but,  it  is  urged,  may  become  one  of  su- 
preme moment  if  the  carriers  insist  upon  a  right  to  increase 


376  RAILROAD  VALUES  AND  RATES 

rates  in  proportion  to  increasing  land  values.  In  a  very  real 
sense  these  added  land  values  do  not  come  to  the  railroad  as  a 
railroad,  but  as  an  investor  in  land  which  has  been  dedicated 
to  a  public  use ;  and,  being  so  dedicated,  it  may  be  strongly 
urged  that  the  increment  added  thereto  from  year  to  year  by 
communal  growth  should  not  necessitate  an  imposition  of  ad- 
ditional rate  burdens  upon  the  public.  Again,  it  is  said  that 
the  community  increasingly  taxes  these  lands  upon  their  eon> 
mercial  value  as  real  estate,  and  that  therefore  the  public  is 
stopped  from  denying  their  right  to  return  upon  such  basis  of 
value.  Without  delaying  to  consider  this  matter  it  may  be 
said  that  in  this  case  it  has  been  discovered  that  the  ratio 
of  taxes  to  operating  revenues  of  the  carriers  remains  ap- 
proximately the  same  throughout  the  years.  While  the  abso- 
lute tax  somewhat  increases  the  relative  tax  does  not  increase. 
Furthermore,  such  facts  as  we  have  been  enabled  to  gather 
tend  to  indicate  that  land  used  for  railroad  purposes  does  not 
increase  in  value  out  of  proportion  to  the  increase  in  the  value 
of  the  property  as  a  whole. 

Whatever  the  true  economic  or  legal  view  may  be  as  to  the 
right  of  a  carrier  to  consider  the  increase  in  value  of  its  land 
as  a  part  of  the  value  upon  which  it  is  entitled  to  a  reasonable 
return,  such  increase  in  value  does  not  of  itself  establish  the 
right  of  a  carrier  to  increase  rates  upon  a  given  service.  Cer- 
tainly if  the  Supreme  Court  may  decline  to  lay  down  the  abso- 
lute rule  that  "in  every  case  failure  to  produce  some  profit  to 
those  who  have  invested  their  money  in  the  building  of  a 
road  is  conclusive  that  the  tariff  is  unjust  and  unreasonable " 
(Reagan  v.  Farmer's  Loan  &  Trust  Co.,  154  U.  S.  412),  it  is 
a  conservative  statement  of  the  law  to  hold  that  a  railroad 
may  not  increase  the  rates  upon  a  number  of  commodities 
solely  because  its  real  estate  has  risen  in  value. 

The  Burlington  has  assumed  that  the  true  basis  of  a  rail- 
road value  was  the  cost  of  reproduction,  and  it  may  not  be 
unworthy  of  our  attention  to  consider  the  reproduction  value 
of  this  property  as  estimated  by  the  officials  of  the  Burling- 


RAILROAD  VALUES  AND  RATES  377 

ton  and  present  the  record  made  therein  as  to  the  cost  of 
building  a  road  in  this  section  of  our  country.  It  is  said,  and 
with  no  little  supporting  reason,  that  those  who  prophesy  or 
fear  that  rates  will  constantly  ascend  from  this  time  forward 
because  of  the  increasing  value  of  lands  are  mistaken ;  that  no 
such  results  would  take  place  because  increasing  earnings 
would  care  for  increasing  land  values.  This  certainly  should 
be  so  if  the  property  is  situated  so  that  it  can  avail  itself  of 
the  greater  volume  of  traffic  produced  by  a  richer  and  more 
productive  territory.  At  any  rate  it  is  fair  to  say  that  the 
time  has  not  yet  come  when  values  have  so  increased  that  they 
menace  existing  rates,  whatever  may  be  the  support  they  give 
to  the  contention  that  rates  should  not  be  reduced.  [Page 
5389.]  .  .  . 

[Page  5391]  The  trend  of  the  highest  judicial  opinion 
would  indicate  that  we  should  accept  neither  the  cost  of  repro- 
duction, upon  which  the  Burlington's  estimate  of  value  is 
made,  nor  the  capitalization  which  the  Santa  Fe  accepts  as  ap- 
proximate value,  nor  the  price  of  stocks  and  bonds  in  the 
market,  nor  yet  the  original  investment  alone,  as  the  test  of 
present  value  for  purposes  of  rate  regulation.  Perhaps  the 
nearest  approximation  to  the  fair  standard  is  that  of  bona 
fide  investment — the  sacrifice  made  by  the  owners  of  the  prop- 
erty— considering  as  part  of  the  investment  any  shortage  of 
return  that  there  may  be  in  the  early  years  of  the  enterprise. 
Upon  this,  taking  the  life  history  of  the  road  through  a  num- 
ber of  years,  its  promoters  are  entitled  to  a  reasonable  return. 
This,  however,  manifestly  is  limited;  for  a  return  should  not 
be  given  upon  wastefulness,  mismanagement,  or  poor  judg- 
ment, and  always  there  is  present  the  restriction  that  no  more 
than  a  reasonable  rate  shall  be  charged. 

[An  interesting  item  in  this  connection  is  clipped  from  the  financial 
columns  of  the  New  York  Times  of  July  10,  1912. — ED. 

BURLINGTON'S  FAT  TBEASUEY. — No  one  appreciates  more  than  J.  J. 
Hill  that  one  cannot  eat  his  cake  and  have  it.  For  several  years 
stockholders  of  the  Great  Northern  and  Northern  Pacific  have  been 


3T8  RAILROAD  VALUES  AND  RATES 

greedily  watching  the  increasing  profit  and  loss  surplus  of  the 
Chicago,  Burlington  &  Quincy,  jointly  owned  by  the  two  roads.  When 
the  Burlington  was  earning  11  per  cent,  they  felt  that  the  time  had 
come  for  it  to  pay  something  more  than  the  interest  on  the  cost  of 
its  ownership.  When  it  began  to  show  from  13  to  14  per  cent,  they 
saw  the  possibility  of  a  "melon"  in  its  surplus  over  the  8  per  cent, 
disbursed  on  its  stock.  In  1911  the  road  earned  15  per  cent,  and 
still  paid  only  8  per  cent.  In  the  period  closed  with  June  30,  after 
a  very  severe  winter  and  other  unfavorable  conditions  which  left 
some  of  the  transcontinental  with  a  deficit  after  dividends,  the 
Burlington  earned  about  13^  per  cent,  on  its  $110,000,000  of  stock. 
The  reason  this  company  is  able  to  continue  to  earn  a  large  balance 
over  dividends  in  spite  of  bad  weather  or  business  depression  is  that 
the  management  did  not  embrace  the  first  opportunity  to  increase 
the  payment  on  its  shares.  Instead,  the  surplus  was  plowed  back 
into  the  property,  as  railroad  men  say.  It  was  used  for  improvements, 
which  are  now  earning  a  handsome  return  on  the  uncapitalized  in- 
vestment. In  the  Burlington  the  Northern  Pacific  and  Great  Northern 
have  a  sheet  anchor  which  would  enable  them  to  weather  a  bad  year 
without  reducing  their  dividends.  So  far  the  Hill  boards  have  shown 
no  disposition  to  cut  into  the  Burlington's  surplus. 


RAILROADS  AS  NATIONAL  ASSETS 

[THE  Interstate  Commerce  Commission  in  its  decision  on  "Advance 
of  rates  by  carriers,  in  official  classification  territory"  (Eastern  roads), 
Feb.  22,  1911,  weighed  somewhat  the  question  as  to  the  ultimate 
equities  in  the  growing  railroad  surpluses  and  increments  of  value 
in  the  United  States.  After  considering  the  case  presented  by  such 
improvements  as  the  elevation  of  tracks,  involving  large  expenditures 
for  the  benefit  of  the  public,  the  Commission  says:  "It  is  difficult  to 
see  how  it  [the  railroad]  can,  upon  the  theory  of  the  Yellow  Pine 
case,  charge  the  entire  expense  of  the  improvement  to  the  public  through 
higher  rates."  It  then  continues  (Senate  Document,  725,  61st  Con- 
gress, 3d  session,  p.  5459 ) :  ] 

Where  lies  the  difference  between  a  revenue-producing  and 
a  non-revenue-producing  improvement?  So  long  as  the  im- 
provement is  for  the  future  the  present  must  not  be  entirely 
taxed  to  provide  it.  The  elevation  of  those  tracks  has  added 
to  the  cost  of  the  railroad;  the  value  of  the  property  which 
that  company  is  using  for  the  public  benefit  has  been  en- 
hanced, and  this  justifies  it  in  demanding  from  the  public  a 
greater  return  than  formerly,  but  not  in  demanding  the  price 
of  the  improvement  itself. 

While  this  would  seem  to  be  the  law  of  the  situation,  there 
is  a  suggestion  of  public  policy  which  might  under  some  condi- 
tions lead  to  a  different  conclusion.  It  is  a  wise  thing  for 
a  nation  as  well  as  for  an  individual  to  lay  up  something  for 
the  future.  This  Nation  in  time  to  come  must  engage  in  ac- 
tive commercial  competition  with  the  rest  of  the  world.  We 
must  manufacture  and  sell  against  other  nations.  Railway 
rates  will  enter  as  an  important  factor  into  that  competition. 
Not  only  the  rate  upon  the  raw  material  to  the  factory  and 
upon  everything  which  enters  into  the  cost  of  living  will  be 
of  consequence,  but  also  the  rate  from  the  factory  to  the  port. 

379 


380  RAILROADS  AS  NATIONAL  ASSETS 

Germany  and  France  to-day  use  their  railroads  to  assist  the 
home  manufacture  as  against  his  foreign  competitor  by  al- 
lowing a  special  rate  upon  articles  for  export. 

In  the  past  we  have  enjoyed  cheap  raw  materials.  Our  food 
has  been  cheap ;  our  coal  and  our  ores  have  been  near  the  sur- 
face; our  lumber  has  been  plentiful.  These  resources  are 
being  exhausted;  the  cost  of  food  is  increasing;  our  forests 
are  being  depleted.  We  must  go  deeper  for  our  coal.  All 
this  will  render  the  cost  of  production  more  expensive,  and  it 
might  be  wise  to  lay  up  in  our  railroads  a  fund  which  should 
be  of  assistance  to  future  generations  in  offsetting  this 
tendency  to  increase  the  price,  were  there  any  assurance  that 
the  fund  when  provided  could  be  made  available.  There  is 
the  gravest  doubt  upon  this  point,  for  the  reason  that  what- 
ever is  invested  in  these  properties  from  earnings  may  belong, 
not  to  the  public  which  has  paid  for  it,  but  to  the  stock- 
holders who  have  already  received  a  full  return  upon  their  in- 
vestment in  the  way  of  a  dividend. 

The  president  of  the  Pennsylvania  Co.  testified  that  since 
1887  his  company  had  put  into  the  Pennsylvania  lines  east 
of  Pittsburgh  $262,000,000  from  earnings.  During  all  that 
time  this  company  has  also  paid  to  its  stockholders  munificent 
dividends.  Now  to  whom  belongs  this  $262,000,000,  a  sum 
which,  according  to  the  statistical  report  of  the  Pennsylvania 
Railroad  Co.  to  this  commission  for  the  year  ending  June  30, 
1910,  equals  nearly  two-thirds  of  the  total  cost  of  construction 
of  the  2,123  miles  owned  by  that  company  ? 

Suppose  this  commission  were  required  to  fix  a  value  upon 
the  Pennsylvania  lines  east  of  Pittsburg.  Could  any  distinc- 
tion be  made  between  this  sum  which  has  accrued  from  the 
operation  of  the  property  and  what  has  been  paid  in  other 
sources  ? 

We  are  not  required  at  this  time  to  express  an  opinion  upon 
that  point.  What  the  claim  of  the  railroads  will  be  when 
the  matter  finally  comes  to  an  issue  is  well  shown  by  a  ques- 
tion which  was  asked  upon  the  argument  and  answered  by  that 


RAILROADS  AS  NATIONAL  ASSETS  381 

attorney  who  was  urging  most  strongly  the  right  of  the  rail- 
road to  accumulate  a  surplus  for  this  purpose : 

Question.  The  popular  idea  seems  to  be  that  these  properties  ought 
to  be  physically  valued,  and  that  the  rate  should  be  determined  by 
the  value  of  the  property  so  fixed.  In  that  case,  would  the  surplus 
be  entitled  to  be  appraised  as  a  part  of  the  value? 

Answer.  As  of  the  date  that  such  a  valuation  takes  place,  the 
property  as  it  stands  belongs  to  the  stockholders.  That  has  been  in 
accordance  with  the  policy  of  the  Government,  and  it  would  take  a 
change  in  the  policy  of  the  Government  to  change  that  legal  situation. 
So  I  think  the  valuation  would  necessarily  be  on  the  property  as  it 
stands. 

In  9  I.  C.  C.  Rep.  382,  417,  the  commission,  in  considering 
the  financial  condition  of  the  Lake  Shore  &  Michigan  South- 
ern Railway  said: 

The  Lake  Shore  &  Michigan  Southern,  on  June  30,  1901,  owned  a 
majority  of  the  capital  stock  of  its  competitor,  the  New  York,  Chicago 
&  St.  Louis  Railroad  Co.,  a  majority  of  the  capital  stock  of  its  con- 
nection, the  Pittsburg  &  Lake  Erie  Railroad  Co.,  almost  one-half  of 
the  capital  stock  of  the  Lake  Erie  &  Western  Railroad  Co.,  and 
$11,224,000  of  the  capital  stock  of  the  Cleveland,  Cincinnati,  Chicago 
&  St.  Louis  Railway  Co.,  besides  smaller  holdings  in  other  companies. 
These  stocks  had  been  acquired,  in  addition  to  the  payment  of  dividends 
not  less  than  6  per  cent,  for  many  years,  out  of  net  earnings.  During 
the  year  1902  it  purchased,  apparently  out  of  surplus,  $4,728,200  of 
the  capital  stock  of  the  Indiana,  Illinois  and  Iowa  Railroad  Co.,  the 
entire  capital  being  $5,000,000. 

This  company  after  paying  7  per  cent,  dividend  to  its  stockholders 
has  a  surplus  each  year  sufficient  to  buy  the  control  of  a  very  consider- 
able railroad.  Before  holding  that  its  revenues  ought  to  be  further  in- 
creased, or  that  the  Government  ought  not  to  exercise  any  supervision 
over  those  revenues,  it  may  be  well  to  consider  what  the  bearing  of 
this  process,  continued  for  half  a  century,  is  to  be  upon  two  of  the 
great  economical  problems  before  us,  namely,  the  distribution  of 
wealth  and  the  control  of  the  avenues  of  transportation. 

The  carriers  in  the  proceeding  now  before  us  have  claimed 
that  they  should  be  allowed  to  invest  in  improvements  and  ad- 
ditions to  the  property  an  amount  equal  to  that  paid  by  way 


382  RAILROADS  AS  NATIONAL  ASSETS 

of  dividends  to  stockholders.  In  the  year  1910  railroad  divi- 
dends aggregated  $405,131,650.  If  this  sum  were  to  be  in- 
vested in  our  railways  annually  for  the  next  half  century,  it 
would  amount  at  the  expiration  of  that  period  to  $20,256,582- 
500,  not  regarding  the  item  of  interest.  This  sum  is  far  in 
excess  of  the  present  total  capitalization  of  our  railroads.  It 
is  not  improbable  that  it  may  equal  the  total  amount  which 
will  be  expended  in  railway  development  in  the  next  half 
century,  and  upon  this  vast  amount  which  has  been  ac- 
cumulated in  addition  to  a  fair  return  upon  the  investment 
railway  stockholders  will  claim  a  return.  Every  dollar  which 
has  thus  been  added  to  the  value  of  these  properties  justifies, 
according  to  the  claim  of  these  defendants,  an  added  net  re- 
turn, and  it  is  further  claimed  that  the  Constitution  of  the 
United  States  protects  these  defendants  in  the  right  to  im- 
pose such  charges  as  will  yield  this  return. 

It  is  evident  that  until  the  status  of  this  surplus  is  de- 
termined by  legislative  action  or  judicial  interpretation,  this 
commission  can  not  properly  permit  an  advance  in  rates  with 
the  intent  to  produce  an  accumulation  of  surplus  for  this 
purpose. 


THE  SHERMAN  ANTI-TRUST  LAW 
[Act  of  July  2, 1890  (26  Stat.  209)]. 

AN  ACT  TO  PROTECT  TRADE  AND  COMMERCE  AGAINST  UNLAWFUL 
RESTRAINTS  AND  MONOPOLIES. 

Be  it  enacted  ~by  the  Senate  and  House  of  Representatives 
of  the  United  States  of  America  in  Congress  assembled. 

SECTION  1.  Every  contract,  combination  in  the  form  of  trust 
or  otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce 
among  the  several  States,  or  with  foreign  nations,  is  hereby 
declared  illegal.  Every  person  who  shall  make  any  such  con- 
tract or  engage  in  any  such  combination  or  conspiracy,  shall  be 
deemed  guilty  of  a  misdemeanor,  and,  on  conviction  thereof, 
shall  be  punished  by  fine  not  exceeding  five  thousand  dollars, 
or  by  imprisonment  not  exceeding  one  year,  or  by  both  said 
punishments,  in  the  discretion  of  the  court. 

§  2.  Every  person  who  shall  monopolize,  or  attempt  to 
monopolize,  or  combine  or  conspire  with  any  other  person 
or  persons,  to  monopolize  any  part  of  the  trade  or  commerce 
among  the  several  States,  or  with  foreign  nations,  shall  be 
deemed  guilty  of  a  misdemeanor,  and,  on  conviction  thereof, 
shall  be  punished  by  fine  not  exceeding  five  thousand  dollars, 
or  by  imprisonment  not  exceeding  one  year,  or  by  both  said 
punishments,  in  the  discretion  of  the  court. 

§  3.  Every  contract,  combination  in  form  of  trust  or 
otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce  in 
any  Territory  of  the  United  States  or  of  the  District  of  Co- 
lumbia, or  in  restraint  of  trade  or  commerce  between  any  such 
Territory  and  another,  or  between  any  such  Territory  or  Ter- 
ritories and  any  State  or  States  or  the  District  of  Columbia, 

383 


384  THE  SHERMAN  ANTI-TRUST  LAW 

or  with  foreign  nations,  or  between  the  District  of  Columbia, 
and  any  State  or  States  or  foreign  nations,  is  hereby  declared 
illegal.  Every  person  who  shall  make  any  such  contract  or 
engage  in  any  such  combination  or  conspiracy,  shall  be  deemed 
guilty  of  a  misdemeanor,  and,  on  conviction  thereof,  shall  be 
punished  by  fine  not  exceeding  five  thousand  dollars,  or  by 
imprisonment  not  exceeding  one  year,  or  by  both  said  punish- 
ments, in  the  discretion  of  the  court. 

§  4.  The  several  circuit  courts  of  the  United  States  are 
hereby  invested  with  jurisdiction  to  prevent  and  restrain 
violations  of  this  act;  and  it  shall  be  the  duty  of  the  several 
district  attorneys  of  the  United  States,  in  their  respective  dis- 
tricts, under  the  direction  of  the  Attorney  General,  to  institute 
proceedings  in  equity  to  prevent  and  restrain  such  violations. 
Such  proceedings  may  be  by  way  of  petition  setting  forth  the 
case  and  praying  that  such  violation  shall  be  enjoined  or 
otherwise  prohibited.  When  the  parties  complained  of  shall 
have  been  duly  notified  of  such  petition  the  court  shall  proceed, 
as  soon  as  may  be,  to  the  hearing  and  determination  of  the 
case;  and  pending  such  petition  and  before  final  decree,  the 
court  may  at  any  time  make  such  temporary  restraining  order 
or  prohibition  as  shall  be  deemed  just  in  the  premises. 

§  5.  Whenever  it  shall  appear  to  the  court  before  which 
any  proceeding  under  section  four  of  this  act  may  be  pending, 
that  the  ends  of  justice  require  that  other  parties  should  be 
brought  before  the  court,  the  court  may  cause  them  to  be  sum- 
moned, whether  they  reside  in  the  district  in  which  the  court 
is  held  or  not ;  and  subpoenas  to  that  end  may  be  served  in  any 
district  by  the  marshal  thereof. 

§  6.  Any  property  owned  under  any  contract  or  by  any 
combination,  or  pursuant  to  any  conspiracy  (and  being  the 
subject  thereof)  mentioned  in  section  one  of  this  act,  and 
being  in  the  course  of  transportation  from  one  State  to  an- 
other, or  to  a  foreign  country,  shall  be  forfeited  to  the  United 
States,  and  may  be  seized  and  condemned  by  like  proceedings 
as  those  provided  by  law  for  the  forfeiture,  seizure,  and  con- 


THE  SHERMAN  ANTI-TRUST  LAW  385 

damnation  of  property  imported  into  the  United  States  con- 
trary to  law. 

§  7.  Any  person  who  shall  be  injured  in  business  or 
property  by  any  other  person  or  corporation  by  reason  of 
anything  forbidden  or  declared  to  be  unlawful  by  this  act, 
may  sue  therefor  in  any  circuit  court  of  the  United  States 
in  the  district  in  which  the  defendant  resides  or  is  found, 
without  respect  to  the  amount  in  controversy,  and  shall  re- 
cover threefold  the  damages  by  him  sustained,  and  the  costs 
of  suit,  including  a  reasonable  attorney's  fee. 

§  8.  That  the  word  " person/ '  or  "persons,"  where- 
ever  used  in  this  act  shall  be  deemed  to  include  corporations 
and  associations  existing  under  or  authorized  by  the  laws  of 
either  the  United  States,  or  the  laws  of  any  of  the  .Territories, 
the  laws  of  any  State,  or  the  laws  of  any  foreign  country. 

[The  following  are  expressly  or  in  effect  amendments  of  "the  Sherman 
Anti-trust  Law"  by  addition,  though  the  terms  of  the  original  act 
never  have  been  changed. — ED.] 

1894,  Aug.  27.  In  the  tariff  act  (Wilson  Act),  sections  73-77  (which 
were  expressly  preserved  in  the  Dingley  Act  of  1897  when  most  of 
the  Wilson  Act  was  repealed)  directed  prohibitions  and  penalties  very 
similar  to  those  of  the  Sherman  Act  against  cases  in  restraint  of  trade 
in  connection  with  the  importation  of  goods. 

1903,  Feb.  11.  "An  act  to  expedite  the  hearing  and  determination  of 
suits"  under  the  Anti-trust  act,  and  the  Interstate  Commerce  Act, 
by  giving  precedence  to  such  cases. 

1903,  Feb.  25.  An  appropriation  of  $500,000  made  to  be  expended 
under  the  direction  of  the  Attorney-General  in  the  employment  of 
special  counsel  to  prosecute  suits  under  the  acts  of  1890  and  1894 
above  mentioned;  proviso  that  immunity  is  granted  to  persons  for  any 
matter  concerning  which  he  shall  testify  in  such  suits. 

1903,  Feb.  14.  In  an  act  to  establish  the  Department  of  Commerce 
and  Labor  was  provided  a  Bureau  of  Corporations  to  gather,  compile, 
publish  and  supply  useful  information  concerning  corporations  engaged 
in  interstate  commerce,  and  with  powers  of  investigation  similar  to 
those  of  the  Interstate  Commerce  Commission. 

1906,  June  30.     An  act  defining  the  immunity  of  witnesses  under  the 
several  acts  before  mentioned;   immunity  shall  extend  only  to  a  nat- 
ural person  testifying  under  oath. 
25 


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•AW 


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